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Wondering whether selling a Limited Company has tax implications? If you’re thinking of selling up to kick-start a new venture or you think now’s the time to make a profit from your business, there are a bunch of things to consider.
You’re probably already thinking about who you sell your business to, how to get started with the sale, and what taxes you might have to pay.
In this guide, we’ll take a closer look at the potential tax implications when it comes to selling your Limited Company.
First things first – let’s make sure we’re all on the same page when it comes to a Limited Company.
A Limited Company is an organisation that runs your business, meaning you’re no longer entirely responsible for it. If you’ve landed on this page then you probably already knew that, but hey, we’re here to help.
Think of selling your business like selling a house – you want the best possible price with the least amount of hassle.
How much tax you’ll pay depends on the structure of your business, as well as your profit margins. Identifying all of these factors now will help you on your way to a hassle-free sale. Gov.uk offers some handy advice on your responsibilities when selling a Limited Company.
When you sell your business, the amount of tax you pay will depend on your operating structure as a business – and the sale itself.
As a Limited Company, you might need to pay Capital Gains Tax and Corporation Tax, whereas a Sole Trader would pay Income Tax instead.
How you sell your business (the sale structure) can also play a part. This is where things can get a little complicated – so let’s break it down!
You’ll need to identify your sale structure to better understand what taxes you’ll need to pay.
There are 3 taxes you need to be aware of when selling your Limited Company.
Capital Gains Tax (CGT) is the tax applied on the profits made from selling your business – every owner selling a Limited Company will need to pay tax on their Capital Gain.
How to calculate your Capital Gain: ​​​Let’s imagine you’re selling your business for £500,000 and you bought it for £300,000. Your Capital Gain = £200,000.
Once you’ve worked this out, you can use our handy Capital Gains Tax calculator to do the maths for you! It really is that simple.
Your total capital gains tax (CGT) owed depends on two main components:
Your overall earnings determine how much of your capital gains are taxed at 10% or 20%.
Our capital gains tax rates guide explains this in more detail.
In your case where capital gains from shares were £20,000 and your total annual earnings were £69,000:
You pay no CGT on the first £12,300 that you make
You pay £127 at 10% tax rate for the next £1,270 of your capital gains
You pay £1,286 at 20% tax rate on the remaining £6,430 of your capital gains
Now that we’ve got to grips with CGT, let’s take a look at Business Asset Disposal Relief (BADR tax). You might also know this as Entrepreneurs Relief.
Business Asset Disposal Relief could help you reduce your tax liabilities when selling your Limited Company. But how?
BADR works by reducing the Capital Gains Tax rate to 10% for eligible entrepreneurs. As an owner of a Limited Company, you could qualify for this generous tax relief if:
You’re disposing of your personal business or shares in a business partnership.
OR
You’re a director of your company and are selling shares.
Read more here about BADR eligibility and how to claim.
If you’re thinking about selling company assets as part of your sale (an asset sale), you’ll probably need to pay Corporation Tax (or Company Tax) in addition to CGT.
How much Corporation Tax you pay will depend on:
Don’t worry if you’re not selling assets – you won’t need to pay Corporation Tax.
You can learn more about Corporation Tax here.
Getting to grips with the tax implications of selling a Limited Company isn’t easy – but TaxScouts can help! For tax advice on your sale, we can offer simple, one-off advice. We’ll assign you an accredited accountant for £119, all in. Get started here.
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