Selling business and need to avoid 40% income tax - advice please?


A

Anon User

Hi

I have been made an offer to buy one a business I run. The business
was started as a hobby, and i've never had need for an accountant.
(the accounts have always been relatively simple. The income from the
same source, the outgoings similar). On top of my day-job, the income
from my hobby business has never caused me to leave the 22% income tax
zone either!

The offer ammount would leave myself and my business parter each with
£100k before any tax.

at 40% income tax, this would give us just £60k !

It hardly seems worth selling up - better to leave the business
ticking over, not improving anything, and carrying on as normal.
neither of us really want to do that.

How can we dispose of the business without being taxed to death? 40%
just seems over the top!

We would both like to use our shares towards a new house each (in
addition to a small mortgage). Are there any tax breaks we can get for
doing that?

Ideas?
 
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R

Ronald Raygun

Anon said:
How can we dispose of the business without being taxed to death? 40%
just seems over the top!
What is the nature of the business? What are its assets?
 
P

private.usenet.user

Well it would be subject to Capital Gains Tax, not Income Tax, and
there are
things like taper relief and the annual exemption available to reduce the
tax bill.
Thanks Jonathan.

I didn't understand all I've read on CGT - but from what I can tell,
rather than getting just £60k of the £100k under income tax, I'd
actually get £69,700 if I paid just CGT (if I worked it out
correctly!)

So a saving, appreciated!
If you are selling things like equipment, then the cost of this equipment is
relevant in working out what tax you would have to pay.
Not many assets, just a few servers. Total worth £3k.

Correct me if I'm wrong, of the £69,700 I have left after my initial
CGT calculatons - I could deduct an ammount for disposing of the assets
and the cost of the disposal? (say £5k if we were to bill time and
resources).

Or have I misunderstood it?

It's getting a bit complicated so I'll have to get an accoutnant in
(can their cost be deducatable from cost of disposal?)

BUT - in order to work out whether it's worth selling in the first
place without being taxed to death - this usenet chat has already
helped - thanks!
 
R

Richard Faulkner

In message said:
It's getting a bit complicated so I'll have to get an accoutnant in
(can their cost be deducatable from cost of disposal?)
Get an accountant on the case - it should be money gladly spent.

I sold a business plus property last year and was expecting a £40K tax
bill - I wasnt sure of all the relief's available, or how to apply them.

When my accountant called with the figures, I was expecting the worst,
held my breath, "£17,500" inclusive of income tax due.

Worth every penny of the £1500 for all of my affairs for the year!!
 
R

Ronald Raygun

not a lot - a few servers (approx £3k)
In what does the value lie, then? Its name? Existing customer base?
Intellectual property? If whatever it is can be deemed to be a business
asset, which seems likely, then any capital gain would be subject to
oodles of taper relief. If you have owned the business for more than
four years, your chargeable gain would be reduced by 75%.
 
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D

Doug Ramage

Ronald Raygun said:
In what does the value lie, then? Its name? Existing customer base?
Intellectual property? If whatever it is can be deemed to be a business
asset, which seems likely, then any capital gain would be subject to
oodles of taper relief. If you have owned the business for more than
four years, your chargeable gain would be reduced by 75%.
It is only 2 years to qualify for 75% Business Taper Relief.

This gives an (maximum) effective CGT rate of 10% (25% x 40%).

If the net gain after Taper Relief does not take you into the 40% band, then
the effective CGT rate is 5% (25% x 20%).
 
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M

mogga

Hi

I have been made an offer to buy one a business I run. The business
was started as a hobby, and i've never had need for an accountant.
(the accounts have always been relatively simple. The income from the
same source, the outgoings similar). On top of my day-job, the income
from my hobby business has never caused me to leave the 22% income tax
zone either!

The offer ammount would leave myself and my business parter each with
£100k before any tax.

at 40% income tax, this would give us just £60k !

It hardly seems worth selling up - better to leave the business
ticking over, not improving anything, and carrying on as normal.
neither of us really want to do that.

How can we dispose of the business without being taxed to death? 40%
just seems over the top!

We would both like to use our shares towards a new house each (in
addition to a small mortgage). Are there any tax breaks we can get for
doing that?

Ideas?
Why not ask if they want to run it and pay them a salary and % of
profit?
 

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