How to Sell your Business and Secure your Future Wealth

November 23, 2023

Find out how financial planning can help maximise your wealth when the time comes to sell your business

Selling your company is a big moment. You’ve invested time, blood, sweat, tears and your own money into building it. According to our recent survey, 40% of business owners are planning to exit their company within the next year.

When the moment to sell arrives, you need to ensure that your profits secure the future you’ve worked so hard for. The earlier you start planning for a business exit, the more options you’ll have and the better prepared you’ll be.


How to Maximise your Pension

Pensions are a big part of our financial plans. But too often we see that entrepreneurs have not made the most of their pension allowances, or have no pension. This could be because you are remunerated by dividends, not a salary, and reinvest your money back into the company.

The good news is that during the pre-sale stage of your business exit, it is possible to maximise your pension contributions. This can form a vital part of not just your retirement plans, but also your business exit strategy. If you are a company director, you can make personal contributions to a pension scheme. You can contribute and receive tax relief on payments up to £60,000 a year, or 100% of your earnings (whichever is less). You can also “carry forward” any unused contribution allowances from the previous three years and receive tax relief on a contribution of £40,000 per annum, making an additional possible maximum of £120,000, assuming earnings levels are sufficient. An individual can make additional contributions in excess of the annual allowance plus any available carry forward, but it is important to note that this action will incur an annual allowance charge.

If you are a company director, your company can also make employer contributions to your pension, utilising the pension annual allowance and by using pension carry forward.

Additionally, providing the employer contributions qualify under HMRC’s ‘wholly and exclusively’ rules, employer pension contributions can exceed the above £180,000 figure and are theoretically unlimited. These contributions could be deemed as a business expense and deducted from the business’s gross profits. Not only could this boost your retirement savings, but it could also lower your company’s corporation tax liability. Please note, while an employer pension contribution is unlimited, any contributions in excess of the annual allowance plus any available carry forward will incur an annual allowance charge.

An accountant or tax adviser should always be consulted in these circumstances to ensure you fully comply with HMRC’s rules.

Pensions can hold your wealth tax-efficiently over the long term and create opportunities for succession planning. You can pass them on outside of your estate for inheritance tax purposes, potentially lowering any liability you leave behind.



Why Cashflow Modelling Matters

Cashflow modelling gives a picture of what your financial future could look like after you’ve sold your business.  It can help you make important decisions before the sale completes.

We use cashflow modelling to forecast your future income needs, taking into account the proceeds from the business sale as well as other assets and expenditures. This shows if you are on track to achieve your lifestyle and retirement goals, how much money you need to save, or how long you need to work for.

Cashflow modelling can also show you how much you need to sell your company for. This amount is often different to what you want to receive. By looking at the figures in context, you might be able to sell earlier than you think.

Cashflow modelling also helps you understand if you can or should consider giving shares away before agreeing to any binding contract of sale. You can consider other options linked to your overall financial objectives and views on tax.


Using your Business for Estate Planning

You should know that your heirs could lose 40% of your business proceeds to inheritance tax (IHT) in the event of your death. Effective IHT and estate planning can help to mitigate this.

There are many ways to reduce your IHT bill, including making lifetime gifts, and passing on a pension or using trusts. Another common method for entrepreneurs is the use of business relief qualifying investments. Following the successful sale of your business, you have a three-year window to reinvest the proceeds into an appropriate business relief scheme, which then benefits from immediate inheritance tax relief.

If an asset that qualifies for business relief is sold, relief can be maintained if the asset is replaced by the purchase of a new business asset. The two-year ownership period is not reset if the sale proceeds are used to purchase a replacement asset within three years of the sale of the original asset.

Business relief is available if the combined ownership period of the original property and any qualifying replacement property covers at least two of the five years immediately before a transfer or death. Placing business relief qualifying assets into a discretionary trust following the two-year qualifying period means they are not counted in the calculations for residential nil rate band relief, which begins to reduce when an estate is valued above £2 million.

However, if you die before the replacement asset is purchased, business relief will be lost, and the proceeds could be liable to inheritance tax at a rate of up to 40%. You should consider having a back-up plan in place, such as insurance cover.

While the IHT benefits of business relief are significant, there is a high level of risk associated with business relief schemes and they should be seen as longer term and less liquid investments. It is therefore extremely important to seek professional advice before making these investments.


Speak to us about your Business Exit Strategy

There are many different things to consider when it comes to selling your business. Financial planning is one of them. By working with your other advisors, we ensure that advice in one area does not adversely affect another. We call this our 360° approach.

To see how we can help turn your business wealth into personal wealth get in touch for a complimentary planning session.

By necessity, this article can only provide a short overview and it is essential to seek professional advice before applying the contents. It does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.

The value of an investment may go down as well as up and you may get back less than you originally invested.

Prevailing tax rates and reliefs depend on your individual circumstances and are subject to change.

Evelyn Partners Financial Planning Limited is authorised and regulated by the Financial Conduct Authority.


Get in Touch

For more information, please contact Craig DowsettDirector of Financial Planning at Evelyn Partners.

If you’re interested in further information on a share sale, get in touch with us here.

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