On the successful sale of a park business the owner will hopefully find himself in receipt of a significant amount of money. No doubt he will have already made plans on what he is going to do with it, but how do those plans fit with his overall tax planning?
A successful entrepreneur does not want to see the sale proceeds of a successful business sale unduly eroded by a large tax bill. Accordingly tax advice should be taken early on in any deal to ensure that the mechanics of the sale are as tax efficient as possible. The longer you leave it the less options you will have.
Anyone who sells a park business should be looking as part of their succession planning on what tax effect there will be on the various options. Each business sale is different and it follows that what is tax efficient for one client will not be for another.
As discussed throughout this series of articles, you should think very carefully early on about the way in which you would like to sell your park business and be mindful of the tax consequences of the various options available. For example the tax consequences of a full share sale as opposed to a business asset sale are very different. There are times when a full share sale is undesirable but also unavoidable because of a lack of planning. For example a business owner may pay less tax on a business asset transfer than a full share sale, but in circumstances where the most valuable asset in the business is the current contracts with customers and the contracts are not freely transferable then a full share sale would be unavoidable. Given more time, the business owner could have addressed these legal issues and accommodated a business asset sale.
On the other hand there may be instances where a complete share sale is the most attractive option if it means that you can then utilise Entrepreneur’s Relief on the sale proceeds which would reduce your Capital Gains Tax (CGT) liability from a possible 20% to 10%.
The conditions applicable for Entrepreneur’s Relief are very technical and advice should be sought from the outset to determine whether or not you can qualify for the relief. In circumstances where you are not eligible for the relief it may be possible for you to become eligible before the sale occurs, if the correct steps are taken at the right time, in some instances steps would need to be taken at least two years before the sale.
As well as considering the tax you will pay on the disposal you should also consider how the sale could affect your Inheritance Tax (IHT) planning once you have received the cash. Before the sale your business interests may have been exempt from IHT because of Business Property Relief (BPR). As soon as the sale is completed you will most likely lose BPR immediately, meaning that the cash from the sale is taxable on death. Given that the current IHT rate is 40% (during the 2017/18 tax year) on estates worth over £325,000 the loss of BPR can have a huge effect on the amount of IHT payable on death if tax planning is not considered.
However it is important to remember that tax is not the only driver when looking at the options. If there is no value in the first place then the potential tax implications become irrelevant.
This is where we liaise closely with your current accountant and in some instances one who deals specifically with sole transactions.
Too many times we see last minute tax driven changes to a business. This worries the potential purchaser and either puts them off or makes them vary the deal in a way which does not benefit the seller.
If you are looking at maximizing and preserving the value of your park business, or wish to discuss any aspect of running your holiday park, please contact Alistair Latham on (0)1482 324 591.