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Tax Issues on Buying and Selling Private Companies

Mike Cooper

IoD Conference 2011

Overview of the sales process

Share v Asset sale

Share sale

Asset sale

Prior to sale: Securing the 10% tax rate!

Entrepreneurs Relief (ER) reduces the capital gains tax rate down to 10%. The main qualifying conditions are:

• company must be a “trading” standalone/parent company• shareholder must have at least a 5% holding of ordinary shares &

voting rights• shareholder must be an officer or employee of the company• above conditions must usually be satisfied for 12 months prior to

disposal of the shares

Each individual has a maximum lifetime entitlement to ER of £10million!

Prior to sale: Structuring – property & trade

Shareholders

Property ring-fenced against commercial risk

Can sell property or trade

Most tax efficient

Cheapest to

implement

Sellers planning

• Extracting surplus funds in advance• ER risk

• Dividends/bonuses/pensions

• Salary/dividend freezes

• Share capital reduction

• Claiming reliefs• R&D Tax Relief

• Capital Allowances

• Buy - out minority shareholders?

• Share Options

• Management Buy Outs

• Split of consideration – cash/loan notes/shares

Buyers planning

• Split of consideration

• Intellectual property

• Employment tax

• Property reliefs

• VAT

• Borrowing & debt relief

• EIS/ CVS reliefs

• Due diligence

Post sale: Sellers

Post sale: Buyers

• Reorganise?

• Loss protection

• Claim any missed reliefs

Summary

• Fail to plan, plan to fail!

• Plan now

• Financial information - accounts, CT returns – all must be real time

• CVDFK can help!

Contact

Chantrey Vellacott DFK LLPRussell Square House10-12 Russell Square

LondonWC1B 5LF

Mike Cooper Tax Partner

0207 509 920107976 709910

mcooper@cvdfk.com