Entrepreneur - Exit Planning

Capital Gains | Business Sales

An entrepreneur who had built a successful business over many years began planning for a potential exit.

While no transaction was imminent, the entrepreneur wanted to understand the tax implications of different exit routes and to position themselves to maximise the post-tax proceeds when the time came.

Exit planning should ideally begin well before any transaction. Many of the most valuable tax reliefs have qualifying conditions that take time to satisfy, and restructuring immediately before a sale may be challenged by HMRC.

Our advice covered:

Business Asset Disposal Relief (BADR): We reviewed the entrepreneur's position against the qualifying conditions for BADR, which provides a reduced CGT rate on up to £1 million of lifetime gains. The conditions include holding at least 5% of the shares, being an officer or employee, and the company being a trading company. We identified potential issues and recommended steps to secure qualification.

Enterprise Management Incentives (EMI): The company had granted EMI options to key employees. We reviewed the option scheme to ensure it remained qualifying and advised on the interaction with BADR.

Pre-Sale Restructuring: We considered whether any restructuring should be undertaken before a sale, including extracting cash from the company, reorganising the share capital, and settling any outstanding tax issues.

Sale Structure: We analysed the tax implications of different sale structures, including asset sale vs share sale, earnout arrangements, and vendor financing. We modelled the tax outcomes under different scenarios.

Reinvestment Relief: We advised on the availability of reinvestment reliefs, including the enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS), which can provide CGT deferral or exemption on gains reinvested in qualifying companies.

Timing: We considered the impact of timing on the tax position, including the interaction with the annual exempt amount, the availability of reliefs, and the risk of rate changes.

Inheritance Tax: For a business of this value, inheritance tax was also a consideration. We advised on the availability of business property relief and the interaction with exit planning.

We prepared a detailed exit planning report setting out our analysis and recommendations. The report included a timeline of actions to be taken in advance of any transaction.

Outcome

Comprehensive exit planning framework established.

BADR position secured through recommended actions.

Pre-sale restructuring plan developed.

Tax modelling completed for different exit scenarios. Entrepreneur positioned to maximise post-tax proceeds on eventual exit.

This case study is based on a real client matter. All identifying details have been removed or changed to protect client confidentiality.