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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4338
Experience:  FCCA FCMA CGMA ACIS
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I am planning to sell my business, either freehold or

Customer Question

I am planning to sell my business, either freehold or leasehold depending on tax implications of both. I am a director together with my 3 brothers and we still will have one more shop after selling this. I am thinking about the reliefs available on selling.
Submitted: 7 months ago.
Category: Tax
Expert:  bigduckontax replied 7 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

From your question you yourself appear to be going out of the business all together. If this is indeed the case then any gain you make on the disposal will be entitled to Entrepreneurs' Relief (ER). This means that instead of the gain being exposed to Capital Gains Tax (CGT) at the usual 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale, ER limits the tax to a flat rate of 10%.

I do hope that you have found my reply of assistance.

Customer: replied 7 months ago.
I am not going out of business all together. I am thinking of selling one of the two shops. I have two offers on the table, freehold and leasehold and would like to know tax implications of both. This is a small limited company.
Expert:  bigduckontax replied 7 months ago.

Companies are not subject to the CGT regime, any profits or losses on the sale being passed through the trading accounts of the company and exposed to Corporation Tax (CT), currently 20%.

Customer: replied 7 months ago.
Do I get EI relief if I sell both my businesses and retire. Do I then have to pay IT to withdraw funds out of the business.
Expert:  bigduckontax replied 7 months ago.

Yes you almost certainly do.

You would not have to pay IT on the funds you receive from this only CGT on any gain limited by ER.

Customer: replied 7 months ago.
I thought that CT and not CGT is payable by companies. As the funds belong to the company then will tax not be payable when we draw this money out.
Expert:  bigduckontax replied 7 months ago.

You are correct that companies are not subject to CGT, but to CT on any gain.

If you withdraw funds on retirement that would constitute a disposal liable to CGT limited to 10% through ER.

Customer: replied 7 months ago.
If the company makes a gain of £1 million on disposal we will have to pay CT of £200,000 and CGT of 10% of £800,000 on withdrawal of funds, that is a total tax of 280,000 on a gain of £1 million.
Expert:  bigduckontax replied 7 months ago.

Well the company will have that liability, correct; it will merely reduce shareholders' funds available for ultimate disposal. When you go out of the business then with ER your gain, not the aggregate of funds withdrawn, will be subject to CGT.

Customer: replied 7 months ago.
What are the tax implication of selling shares vs asstets.
Can the gains be invested in VCT and the tax implications of that.
Expert:  bigduckontax replied 7 months ago.

Exactly the same.

Yes the gains can, but the only tax benefit you will receive will be the normal for VCT investment. It will not affect the tax on the gain. VCTs have the following tax advantages [source: The Money Advice Service]:

'The tax relief on Venture Capital Trusts comes in a number of different forms and with varying risks.

  • The Income Tax relief is 30% on a maximum investment of £200,000 per tax year when you buy newly-issued shares. This is claimed back if you sell your shares within five years, unless you sell them to your spouse or you die.
  • Tax relief is provided in the form of a tax credit to set against your overall income tax liability in the tax year. The amount of the tax credit cannot, therefore, exceed your total income tax liability for that tax year.
  • Dividends from investments in VCTs do not attract income tax provided the original investment was made within the permitted maximum of £200,000 per year.
  • You won’t have to pay any Capital Gains Tax on gains from investments in Venture Capital Trusts and there is no minimum holding period for this rule to apply. But if your VCT investments make a loss, you can’t use this to reduce your Capital Gains Tax bill from other investments.'

I do hope that you have found my reply of some assistance.