Financial Planning Businesses For Sale – Your business is likely to be your most important asset and main source of income so your financial planning should take the future of the business into account.
When you’re selling your business, it’s important not to just focus on maximizing the final sale price. You also need to consider the impact that amount will have on your and your family’s assets.
Financial Planning Businesses For Sale
In the current rules, the sale, the business owner is liable for capital gains tax on the sale proceeds. If the owner meets certain criteria, they can claim Business Asset Disposal Relief (BADR), formerly known as entrepreneurs’ relief, meaning you can claim up to £1 million pounds at a rate of 10%. There is an opportunity to The rest will be taxed at the current rate of 20%.
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* Opportunity to save an extra £100k tax: If you have a spouse, there is an opportunity to transfer some of your shares to your partner subject to a two-year rule and other conditions. This may mean you are eligible for two business property disposal reliefs (two lots of £1 million at 10%) as transfers between spouses and civil partners can take place at no loss, no gain.
Currently, commercial businesses that have been operating for more than two years can qualify for business relief, meaning the value of your business is partially or fully protected from the current inheritance tax rate of 40%. However, once the business sells through your tour in cash, you lose that relief and expose yourself to a full 40% rate.
Of course, there are opportunities to spread your wealth throughout your life, but they often come with a variety of complications and costs.
You can gift directly to family members and friends. However, direct gifts to heirs take seven years before they are fully transferred from the donor’s estate for inheritance tax purposes. In addition, direct gifts do not provide money or security to beneficiaries if they are financially disadvantaged, vulnerable or running into relationship problems.
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Another way to give money during your lifetime, and after the sale, is to set up a trust. Again, this has the same problem of the seven-year clock, but there is protection for assets and beneficiaries, as your trustees (which may include you) can decide when and for what reason they receive the money. is
However, one of the main problems with trusts is the limitation of how much can be transferred without direct tax implications. This limit is currently £325,000 per person. Anything above that will be subject to an immediate, and usually unattractive, inheritance tax charge of 20%.
A unique opportunity exists to potentially pass on over £325,000 without attracting a 20% tax rate. You do this by gifting a percentage of your shareholding to the trust before you sell. As the shares qualify for business relief, they are exempt from inheritance tax on entry.
It is important to note that the transfer of shares to a trust will be treated as a disposal for capital gains tax purposes. However, gift holdover relief is available, meaning the tax can be deferred to a later date.
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Case example: Mark (age 55, single, single) owns 10% of JLB Ltd and is selling his share of the business for £5 million. He has a son, Jeremy, age 21, who is going to university and has proven to be reliable with money.
As you can see, exposure to capital gains tax points remains the same. However, Mark should not give away too much as he could risk liquidating his own business assets if his shares fall below the 5% or £1m value threshold.
As you can see, as long as Mark has been alive for the past seven years after the stock gift goes into the trust, he will be able to transfer £1 million from his estate, which equates to a potential saving of £400,000. It’s worth noting that this is just a family savings as Mark would be sad to pass on this savings to get it.
Trusts not only protect wealth from inheritance tax. A trust is a valuable tool to help protect and control assets. In this example, the trust can help Jeremy and future generations financially, whether it’s funding university fees, providing a regular income, or buying a house for Jeremy to live in. Financial wealth.
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But be aware: trusts are required to be administered continuously and reported to HMRC and are subject to periodic inheritance fees every ten years so they are hassle-free and require expert advice before taking any action. Advice should be sought.
Placing shares in a trust prior to a business sale can reduce your long-term inheritance tax exposure with the added benefit of protecting assets for your family. However, it is very important not to rely too much on money because you need to make sure that you do not need to access the funds for your personal use. This can be especially difficult if you are young and want to retire on the proceeds of the sale. Not only do you need to calculate your cash needs every year, but you also need to factor in unforeseen events, inflation and the possibility of long-term care. We can help you evaluate just like a financial planner!
As a business owner, understand the life commitment and personal sacrifices you’ve made to build your business and how important it is to protect that legacy and the people who rely on it for financial security. Talking to a financial planner, reviewing the finer details and completing a cash flow model can help you plan for this event. To find out how we’ve helped other business owners plan their journey and take control of their future, call us on 01704 571777 or email me at stephen@
Note: This article is a simplified overview of potential financial planning opportunities. More details need to be checked to evaluate the potential of your own company. Please do not attempt this without the help of professional guidance, as it is easy to cause costly damage.
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Keep the end goal in mind. Well, before immersing themselves in the intricacies of the business monetization process, business owners should have a deep understanding of what post-sale needs are in their personal financial planning and their goals if a business monetization is for them. Can actually get there. Ideally, a business sale will A) replace the income previously provided by the business to the business owner; b) provide a financial safety net in case of unexpected financial developments; and C) ambitious goals such as philanthropy, transferring family wealth or starting a new business.
In a personal financial plan, it is better to project a range of possible values for various possible exit options (sold for cash, recapitalization, or other monetization options) on an after-tax, after-fee basis. And then analyze how sales revenue. It will perform over time across a range of expected market returns to see which targets can be confidently funded and which targets are preferred. The plan should take into account a variety of potential risks and a range of outcomes related to market returns, spending, risk tolerance and taxation.
Get your ducks in a row. By planning ahead and organizing, business owners have the greatest chance of maximizing the sale price of their business. If business owners start planning to sell too late, big opportunities to add value to the business may be missed. Building a management team so that the company does not rely too heavily on the business owner will make potential buyers more comfortable. If a business owner can take spontaneous long-term vacations without negatively impacting the business, the business is likely ready for sale.
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Get your team on board with business planning. Because a business sale can take more than a year, it will be disruptive to operations and morale if customers, suppliers, and employees find out that you are planning a business sale. However, you will likely want several key management members to help you plan and execute the sale, preferably with them signing a non-disclosure or confidentiality agreement. Make sure that
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