In my book, Sell Your Business and Retire Happy, I looked at the amazing opportunities available for business owners who are considering selling their business. The current entrepreneur relief available to business owners is a fantastic opportunity to generate funds tax effectively. For more information on entrepreneurial relief, go to my blog on the opportunities available.
A common issue family business owners have is where there is no obvious third-party purchaser for either all or part of their business (in the scenario where the business owner doesn’t want to relinquish complete control of the business but at the same time still wants to take some of their investment ‘off the table’). This is where you could consider constructing your own sale for retiring shareholders.
For example, in the case of the family business, the father’s shareholding could be purchased by the son and if everything is done correctly, securing entrepreneurial relief on the sale proceeds of the father’s share proceeds.
As an example, you might have a business worth ten million, owned as a 50% shareholding by the father who wants to retire and 50% by the son. The father wants to exit as he approaches his retirement and wishes to sell his shareholding in the business. The shareholding is appropriately valued (with a discount as a minority shareholding) and the son structures the purchase for say £4,500,000 for the shareholding. The father receives £4.5 million, less 10% capital gains tax under entrepreneur relief, so net proceeds of £4.05 million. He can then plan for his retirement with very tax efficient proceeds. The son takes control of the business and can use his own entrepreneur relief allowance on any future sale (if that happens and subject to any rule changes in the future). The family has effectively de-risked their exposure to the business and raised funds tax-effectively, securing the retirement for the father.
This type of planning works great with families. Indeed, in my own scenario, I purchased my mother’s and father’s shares in the family wealth management business, leaving me as the sole shareholder, and providing them with a tax-efficient source of capital for their retirements.
It is critical that you seek advice in this specialist area. That’s where our professional network concept really comes into its’ own. We can provide access to some of the UKs leading tax and legal minds once we’ve established exactly what you need to achieve from your business to meet your financial goals.
Does this sound interesting? Why not get a second opinion on your current wealth management needs? For further information about our second opinion service, please follow this link.
Donald Wealth Management doesn’t give taxation advice and you should seek appropriate legal and tax advice before undertaking any form of business sale planning.
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