I've sold my business – what next?
Many individuals selling businesses often look to retire (lucky devils!) and ask how they can use the money from the sale to plan for their family's future. Others look to make tax efficient investments in other businesses. But if you are planning to sell up, what are your options and what would be most tax efficient?
Protecting the money you've made
If you are looking to provide for a comfortable retirement or your family's financial future, traditionally trusts have been one way to protect your wealth and ensure loved ones are looked after during your lifetime and afterwards. However a gift of money to a trust (over the inheritance tax threshold (currently £325,000 per person)) can trigger an immediate 20% entry charge to inheritance tax. By way of comparison, a payment of money into a company (by way of equity or loan) does not have the same tax consequences and so using a company could be a more tax efficient alternative.
We structure companies which use similar principles to a trust where typically, company/investment decisions are made by senior members of the family (as directors and possibly shareholders of the company), which clients often like. The children or grandchildren then benefit from the profits of the company whilst not being involved in the decision making (as shareholders of the company).
By using a company structure, there are potentially other ongoing tax benefits compared with a trust structure. As a result, some of our clients use these companies as part of their estate planning; others to plan their retirements; some to pass wealth to the next generation; or to fund their children and grandchildren's university costs.
We can help you structure your company to suit your requirements. If you are selling a business, we can help you look at the complete picture including planning for your retirement and/or for the next generation.
Investing in other businesses
You may not be thinking about retirement yet and instead you may want to invest your money tax efficiently into a small business or start up. The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are intended to boost investment into small businesses by giving investors certain income tax and capital gains tax reliefs.
If you invest your money in a small business or start up, you are likely to want your investment to be protected as far as possible. For example, you might want a veto right over the major decisions of the company. On the other side of the coin, the founders of the company you invest in will want to ensure they are able to run the business on a day to day basis.
We have significant experience in acting for both investors and companies which are receiving investment and are therefore well placed to ensure you get the tax benefits of the SEIS or EIS. We can also guide you as to what is reasonable and draft/negotiate a shareholders' agreement to protect your investment and, in due course, to secure your exit from the company.
As long as certain conditions are met, Business Property Relief (BPR) may apply to reduce certain inheritance tax charges by either 50% or 100%, so it might be worth you holding the sale proceeds in an investment portfolio that will continue to attract this valuable tax relief, even if only whilst you think about what to do next.
We can advise you on strategies to enhance or preserve this tax relief to suit your circumstances.