Survival Kit
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Published: 23 Apr 2020
In these difficult times there are immediate problems and long-term opportunities in business. The immediate problems may revolve around temporary closure, staff responsibilities, reducing costs and claiming appropriate financial relief that is on offer from the Government.
A survival plan is critical to maintain the value of your company in the long-term.
On the positive side, the reduced pressure of business may afford you a little time to plan how you wish to devise a successful exit strategy so that you can enjoy the benefits of building up a business and selling it. On this front two points come to mind.
Entrepreneur’s Relief
Firstly, the Chancellor, in his last budget, reduced Entrepreneur’s relief from £10M to £1M per shareholder, that is 10% capital gains tax instead of 20%, on the gain sale of your company. For many SME companies that will not be a problem.
However, if it is, you can consider transferring, say up to 49% interest in your company to your spouse or other family members who are involved in the business. This will increase the overall cap of £1M gain taxed at 10%. This is where the planning is required: the spouse or family member needs to hold the shares and be a director or employee of the company for at least two years prior to the sale of the company.
So, thinking about these moves now may save you and your family some tax in the future.
Employee Ownership Trust
Secondly, you may have built up a business with your company employing, say 10-20 members of staff from trainee through to management and feel that they could take over the running of the company on your eventual retirement.
In this case, you could sell the shares to an ‘Employee Ownership Trust’, which will own the shares on behalf of all the company employees. Apart from ensuring continuity of the company, you and other shareholders will pay no capital gains tax on the sale of the shares to the Trust, provided 51% or more of the company is owned by the Trust on behalf of its employees.
Planning and setting up an Employee Ownership Trust involves obtaining appropriate advice and discussions with staff.
You may have more immediate issues at present, but the above may be worth a thought before we come out of the lockdown.
If you wish to discuss any of the above, contact David Cane on 07749 080 806 or send an email. Specialist advice can be recommended for Employee Ownership Trusts.
