Selling your business can be a pivotal moment, and the structure of your ownership plays a crucial role in determining the tax implications of the sale. Utilising a holding company can offer significant tax advantages, potentially allowing for a tax-free transaction.
Understanding Ownership Structures
Personal Ownership
If you personally own the shares of your business, when you sell, the proceeds come directly to you. This makes you immediately liable for Capital Gains Tax (CGT). Recent tax changes have increased CGT rates to 24%, with a reduced rate of 18% applicable only to the first £1 million of business asset disposals from 2026.
Holding Company Ownership
With this structure, a holding company owns the shares of your business. When the business is sold, the proceeds go to the holding company instead of directly to you. This structure provides greater tax flexibility and potential savings. Read about the benefits of holding companies.
Key Tax Advantages of a Holding Company
1. Tax Deferral
Selling your business through a holding company means you’re not taxed personally immediately. The proceeds remain within the company, allowing you to:
- Defer tax payments until you withdraw the funds.
- Plan your finances strategically to reduce your overall tax liability.
- Potentially eliminate tax by spreading withdrawals over several years or moving offshore.
2. Reinvestment Opportunities
Funds held within a holding company can be reinvested without triggering personal income tax. This is particularly beneficial if you plan to:
- Purchase another business.
- Invest in real estate or other ventures.
- Save for long-term growth.
In contrast, personal ownership forces you to pay taxes upfront, leaving less capital available for reinvestment.
3. Income Control and Flexibility
A holding company allows you to control how and when you withdraw funds, potentially reducing your personal tax burden. Options include:
- Paying yourself dividends over time.
- Taking a salary.
- Keeping the money within the company for future use.
This flexibility enables effective income management and tax minimisation. Explore income tax strategies.
Additional Benefits of a Holding Company
Inheritance Tax Planning
A holding company can facilitate the introduction of family shareholders through a Family Investment Company, potentially reducing Inheritance Tax exposure.
Asset Protection
A holding company allows you to ring-fence cash and valuable assets, safeguarding them from potential future business downturns and creditors.
Additional Benefits of a Holding Company
Another avenue to consider is selling your company to an Employee Ownership Trust (EOT). This method can result in a tax-free sale, as such disposals are typically exempt from Capital Gains Tax.
This approach not only provides tax benefits but also ensures the continuity of the business under employee ownership.
Conclusion
Structuring your business ownership through a holding company can offer substantial tax advantages when selling your business. It provides:
- Tax deferral opportunities.
- More capital for reinvestment.
- Income management flexibility.
- Additional asset protection and inheritance tax benefits.
For expert advice on structuring your business for a tax-efficient exit, consult with Cogency CF, specialists in corporate finance and business advisory services.
Note: Tax regulations are subject to change. It’s essential to consult with a tax professional or financial advisor to understand the current laws and how they apply to your specific situation.