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Selling a Business

Selling a Business

How can I reduce my large tax bills from the sale of my business and receive the income I require for my well earned retirement?

Client Circumstances:

  • Mr Cadbury is aged 65 and is married with 2 children.
  • He has sold the family business for £1.5 million.
  • He has a Capital Gains Tax liability of £420,000 (28%).
  • Mr Cadbury has not made significant pension provision.
  • Mr Cadbury wishes to obtain £45,000 pa (gross) income to meet expenditure in retirement.
  • The only other asset is the family home, worth £300,000.
  • He has a moderate attitude to risk.
  • He already has adequate emergency cash provision.
  • IHT liability on second death £460,000.

Recommended Solutions:

  • Invest £900k in a range of Enterprise Investment Schemes (EIS), (half to be carried back to previous tax year, when the business sale took place).
  • Maximise ISAs husband and wife – £15,000 each.
  • Current year pension payment of £40,000 gross – retirement age set for 4 years time.
  • Draw State pensions.
  • Diversify the funds over a spread of four broad asset classes (UK Equity, Overseas Equity, Commercial Property and Fixed Interest).
  • Invest balance of £362,000 into a collectives portfolio.

Benefits from advice given:

  • EIS defers Capital Gains Tax (CGT) of £252,000.
  • EIS Income Tax relief of up to £270,000, which provides first 6 years income needs.
  • Income met by EIS tax reliefs (years 1-4). Then from pension and investment portfolio income.
  • He will also have the prospect of capital and income growth over the long term.
  • EIS exempt for Inheritance Tax (IHT) after 2 years.
  • Pension fund of £40,000 created at a cost of only £22,000.
  • CGT bill reduced from £420,000 to £168,000 by EIS investment.
  • Joint estate of house and investments (ignoring growth) (subject to IHT) after 2 years = £692,000. IHT due on death = £16,800.
  • Use of ISA allowances annually from portfolio.

NB: Does not qualify for Entrepreneurs Tax Relief

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Future Servicing

We will look to carry out a regular review of your circumstances, objectives, needs and portfolio performance to ensure all arrangements continue to be suitable and advise of any changes that may be appropriate.

This example is for illustrative purposes only, based on current legislation and tax allowances. Tax rules and regulations are subject to change.

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