The 2024 Autumn Budget brought a number of significant changes. As well as the headline issues concerning business owners of increased National Insurance contributions, and increased minimum wage etc, the Labour Government also introduced changes to Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) which should be considered carefully by anyone thinking of selling a company. This is as well as the upcoming changes to employment law which are landing in April 2025. It may be that (at least in recent years) there’s never been a better time to get on with selling up…
What is Business Asset Disposal Relief?
Business Asset Disposal Relief is designed to encourage investment in businesses by offering tax relief on the sale of qualifying assets. Under this scheme, Capital Gains Tax (CGT) is reduced to 10% on qualifying gains, which is considerably lower than the standard 20% rate.
To qualify for Business Asset Disposal Relief, a seller must have met various conditions throughout the preceding 2 years ending on the date of disposal:
- The seller must have been an employee (or officer) of the company being sold (or of another company in the trading group).
- The seller must have held at least 5% of the company’s ordinary shares and been entitled to exercise at least 5% of the voting rights.
- The seller must have beneficially been entitled to:
- 5% of the distributable profits and 5% of the company’s assets available on a winding up; or
- 5% of the proceeds if the whole company were sold for market value.
From April 2025 however, key adjustments to Business Asset Disposal Relief will take effect. In April 2025 the CGT rate under Business Asset Disposal Relief will rise from 10% to 14%, and then in 2026 it will rise again to 18%. Bearing in mind that currently, relief is subject to a £1 million lifetime limit on gains, so the current maximum potential tax saving is £100,000. When the rate changes from 10% to 18%, the savings will greatly diminish.
Steps to Prepare Your Business for Sale
Selling a business requires strategic planning and meticulous preparation. Here are some essential steps to help you maximise your sale value and streamline the process:
- Obtain a Business Valuation: Engage a professional or use industry benchmarks to ascertain the market value of your company.
- Identify Potential Buyers: Consider brokers, corporate finance advisors, personal networks, or digital platforms to find suitable buyers.
- Prepare Key Documents: Gather and organise employment contracts, supplier agreements, financial statements, and statutory registers. Ensure all documents are accurate and complete.
- Conduct Internal Due Diligence: Proactively address any discrepancies or gaps in records to ensure they are appealing to prospective buyers.
- Tidy Accounts: if you have been doing your own accounts, or perhaps not keeping quite as tidy records as you could have been, now is the time to get things sorted! If you don’t have an accountant who is experienced in advising on transactions, then consider speaking with one. They can save you time and money, as well as helping to reduce the risk of forgotten issues popping up ruining your deal.
Why Advance Preparation Matters
Being well-prepared ahead of a sale offers several advantages:
- Accuracy: Ensures your records are error-free, preventing delays or renegotiations.
- Expedited Due Diligence: Well-maintained documentation speeds up the buyer’s review process.
- Enhanced Buyer Confidence: A professionally presented company fosters trust and supports stronger negotiations.
- Legal Compliance: Ensures adherence to regulatory requirements, reducing the risk of complications.
- Financial Compliance: Helps reduce the risk of deals falling down during the due diligence phase, as well as helping to limit the risk of warranty and tax covenant claims following completion!
The Share Sale Process
While no two transactions are identical, the process typically follows these stages:
- Engage a Solicitor: Selecting an experienced legal team is crucial to navigating the complexities of a sale.
- Sign a Non-Disclosure Agreement (NDA): Protects confidential information during discussions with potential buyers.
- Agree Heads of Terms: Establishes the key terms of the deal, such as price and key conditions, in principle.
- Buyer Due Diligence: Buyers assess the company’s financial health, contracts, assets, and liabilities.
- Negotiate the Share Purchase Agreement (SPA): This legally binding document outlines the terms of the sale, including warranties and indemnities.
- Provide Disclosures: Sellers issue a disclosure letter qualifying any warranties to limit their liability.
- Complete Ancillary Documents: Includes employment agreements, intellectual property assignments, and stock transfer forms.
- Exchange and Completion: Final documents are signed, shares are transferred, and payment is made.
- Post-Completion Tasks: Update statutory records, file documents with Companies House, and address any outstanding tax obligations.
How Scott Bailey LLP Can Assist
With the CGT changes approaching, there is still time to begin preparing your business for sale. The Hampshire corporate solicitors at Scott Bailey LLP offer expert advice on share sales helping to foster a stress free transaction, from heads of terms to final completion. From our base in the New Forest, our company and commercial solicitors act for businesses and business owners in Bournemouth, Southampton, Winchester, and across the South Coast region. Best of all, unlike many larger law firms we work on a fixed fee basis, so you know what the legal costs for the sale of your business will be from the outset.
If you are selling your company, or would like advice on preparing to sell your company, contact our company and commercial solicitors in Hampshire today for a no obligation chat, and a quote for our fixed fee legal costs.
