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If I sell my UK based limited company with this structure,
£10M Fixed Consideration and £3M earn out that will be paid in 3 years
- £4M on signing
- £2M on 1st year
- £2M on 2nd year
- £2M on 3rd year
- £3M target based earn out on the 3rd year.
1. Can I take advantage of Entrepreneur's Relief for all if it? Does it apply to earn out? Does it apply to all deferred considerations?
2. How much tax do I need to pay and when do I need to pay it for fixed consideration and earn out?
Hello, I am Keith, one of the experts on Just Answer, and pleased to me able to help you with your question.
You will be liable to Capital Gains Tax (CGT) on any gain made on disposal on the date of disposal irrespective of deferred payments by the buyer. However there is a loophole [source: Cheine & Tait]
'Payment in instalments conditions The conditions for the payment of tax in instalments are:- • part or all of the sale consideration is payable in instalments beginning with the sale date, and • the instalments are payable over a period of not less than 18 months. A claim may be made for the tax to be paid in instalments. The tax instalments are:- • decided by the Inland Revenue, but • over a period of not more than eight years from the normal due date and not extending beyond the last of the sale instalments.'
Entrepreneurs' Relief will apply which limits CGT to a flat rate of 10%, but there is a lifetime limit of 10 million.
I do hope you find my reply of assistance. Considerable sums are involved here and I suggest that the employment of a trusted, local professional essential to handle negotiations with HMRC.
Thanks a lot, at this point I'm just trying to figure out the implications if I decide to do it. If it gets to the point of reality I'll do that.
Delighted to have been of assistance.
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Thank you for your support.