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