Selling my business - corporation and CGT tax ?

Question

I want to sell my business for £800K, we started it with 2 £1 shares and bought a building for £320K (now worth £600K)..we have outstanding debts of £245K....just in brief, when i sell the business (limited company) do i have to pay Corporation tax on the sale price and then also CGT on what's left ?

Answer 1

It depends how you sell the business.

If you can persuade the purchaser to take over your company by buying your shares then you will only be subject to CGT on the sale. Assuming the debts of £245k are in the company's name then I would expect the buyer to pay something like £800k - £245k = £555k less about £112k to represent the "hidden" tax liability on the eventual sale of the property. He will probably also discount the figure to allow for any "nasties" to come out of the woodwork.


You would make something over £400k gain. Business taper relief could reduce this to £100k if you sell before next April. Tax at 40% would be £40,000.

After April you would pay 18% of the £400k, which is £72,000. Of course, the Chancellor may bring some new relief in but doesnt intend to announce this yet.

If you don't sell the shares but just sell the business then your company will have to pay Corporation Tax on the profit. Depending on your other profits in the accounting period this will be at a rate somewhere between 20 and 30%.

This way the profits will still be in the company and you have to devise a way to extract them. The simplest way is to wind the company up (it can be done informally very cheaply) and you are right that you would then pay CGT on the profit again. (You are not paying tax twice on the same profit as this is now the profit on the disposal of the shares. The previous tax was on the disposal of the business)

It's difficult to guess at the liability without more detailed information.

Answer 2

Most of what tringyokel says is correct.

You don't give a time scale for ownership, which could make a huge difference.
If you've owned the shares for some years you may be entitled to indexation of more than 100% of their cost, and that's before any taper relief!
That applies to you personally (up to 1998)and the company's assets still.

It is essential that you seek advice from the company's accountant.