Business Succession and Exit Planning

Business Succession and Exit Planning

If you are planning to leave your business, the starting point is what you intend to do with the company. Are you going to sell it, pass it on to somebody else or close it down? Business succession planning can make a substantial difference to the amount you eventually receive, as the tax implications are quite different for each option.

Selling your business

If you have a buyer interested in the business, one of the first things to establish is whether they are buying your shares or the business and assets owned by the company. The tax treatment is quite different.

A shareholder selling shares in a trading company may qualify for Business Asset Disposal Relief (BADR), which reduces the Capital Gains Tax payable. However, the company needs to meet the qualifying conditions, and this may be a problem if it holds significant investments or has ceased trading before the sale.

The other question is what terms you are selling on. It is quite common for a purchaser to pay part of the price upfront and the balance over several years, sometimes depending on how the business performs. Unfortunately, this doesn’t necessarily mean the seller can pay the tax over the same period. It is possible to have a Capital Gains Tax bill on money that hasn’t yet been received.

Simply agreeing to receive payment by instalments does not automatically defer the tax. There are ways to deal with this, including taking some of the consideration in the form of loan notes. Depending on the arrangements, this may allow the tax liability to be postponed until the notes are redeemed. We can advise on the tax treatment of the proposed sale and whether changes to the terms would be beneficial.

There are also tax implications when transferring an existing business into a company. The transfer of business assets can give rise to capital gains tax, although Incorporation Relief may allow the gain to be deferred. From 6^th April 2026, this relief must be claimed rather than being given automatically.

Tax Innovations can assess whether incorporation would be beneficial, when it should take place and how the transfer should be carried out.

Passing on your business

Not every business owner wants to sell to an outside buyer. You might want your children to take over, or perhaps the existing management team or employees are in a position to continue running the company.

Where family business succession planning involves giving away shares, there can still be a tax liability. Transactions between connected parties have special rules, which generally mean that shares transferred to family members are treated as being disposed of at market value. Gift Hold-Over Relief may be available to defer the Capital Gains Tax, and there are also Inheritance Tax considerations, including whether Business Relief is available.

An alternative is to sell the company to an Employee Ownership Trust (EOT). As we have explained in our earlier article on EOTs, this also creates an immediate purchaser for the company, without having to find an external buyer.

The consideration is usually left as a debt (deferred consideration) and paid out of the company’s future profits. There is Capital Gains Tax relief available on qualifying EOT sales, although the rules have changed and only half the gain is now exempt.

Employee share schemes offer another possibility, particularly where key members of staff are expected to take over the business gradually.

Closing your company

If the business has come to an end and you simply want to withdraw the remaining cash and assets, the question is whether these amounts will be taxed as income or capital.

A formal liquidation can allow the remaining funds to be distributed to shareholders as capital rather than dividends, which may result in a lower tax bill. However, the significant liquidator’s fees can often outweigh this advantage for small and medium-sized companies.

There are also anti-avoidance rules intended to prevent shareholders from liquidating a company to take advantage of the lower tax rates and then setting up another company to carry on essentially the same business.

We can help with the tax planning before a sale or transfer, including reviewing the existing company structure, checking which reliefs are available and considering how the proposed arrangements should be put into effect.