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How to maximise your company’s share value, part 1 – Tax on Sales and ER

As your business develops and you decide that it will need further financing or resources, you may find yourself toying with the option of realising the capital value of what you have created.

It’s at this point that the issue of tax – and more importantly capital gains tax – will become more important: there is little financial benefit to you in ensuring that the government takes the biggest possible tax slice out of your Share Sale proceeds.

The current favourable tax regime means that for any chargeable gains made on the sale of your shares, the government will take up to 20% – that is, one fifth of the gain in value that you have created.

That’s where Entrepreneur’s Relief (“ER”) comes in.

What is ER?

ER is a significant source of tax relief for companies undergoing a Share Sale: The current tax regime permits most private company shareholders to use the benefit of ER at 10% on gains of up to £10 million in your lifetime.

There are no guarantees that this regime will remain in situ, so it would be wise to take the benefit of ER while you still can. Any tax relief granted by the government to reduce this potential tax burden should be planned for, if you are to maximise the net tax capital return value from the sale of your company shares.

How do I qualify?

To make use of ER, there are qualifying conditions for both your company and the shareholders:

The company must…

  • be based in the UK
  • not derive 20% or more of its regular turnover from non-trading activities

The shareholders must…

  • own at least 5% of issued shares AND voting rights
  • have owned these shares for at least 1 year before the sale
  • be an employee, director or company secretary of the company

These conditions are not without exception; it’s worth consulting an expert on alternative ways for you to meet the criteria.

If you’d like to learn more about maximising your company’s share value while minimising potential tax obligations, get in touch with our Corporate department today.

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