Share Sale: Business Sale (corporate seller -individual not covered)
Taxa9on of Corporate Seller Individual Seller
considera9on Corpora9on tax on chargeable Capital gains tax Corpora9on tax on chargeable gains for capital assets (e.g land,
received gains plant and machinery, IP and goodwill created or acquired
before 1/04/02).
However – SSE may apply and if Consider whether business asset
so no corpora9on tax payable. disposal relief (BADR) or investors’ Corpora9on tax on income profits for IP and goodwill created
relief (IR – remember NOT for or acquired on or aLer 1/04/02, stock and work in progress.
employees) applies to the first
£1m/£10m respec9vely of gains over a Where an asset qualifies for capital allowances, balancing
seller’s life9me. charges or allowances may arise for the seller, depending on
Individuals also get an annual the amount of considera9on aOributed to that asset.
exemp9on for CGT.
Deferral of tax If SSE does not apply, consider Consider accep9ng considera9on in If the seller company / another company in its chargeable gains
liability on accep9ng considera9on in shares or loan notes to defer tax group will con9nue to trade following comple9on, consider
considera9on shares or loan notes to defer tax liability BUT exercise cau9on if BADR or rollover relief on replacement business assets.
received? liability. IR would have applied to the original
sale (since deferral = default)
Pre-sale dividend? Corporate shareholders are NOT Individual shareholders DO pay tax on NOT relevant – will not affect the value of the assets
taxed on dividends received so dividends at the dividend rate of purchased.
by reducing the considera9on income tax.
payable for the target company BUT – consider how the considera9on received by the seller
this may reduce the overall tax A pre-sale dividend MAY reduce the company will be passed to its shareholder(s) AFTER
payable by the seller. overall tax payable to a seller who is a transac9on, i.e empty cash shell – dividend or voluntary
basic rate taxpayer. If higher = might liquida9on! Either pre-liquida9on dividend or voluntary
not be that beneficial. liquida9on.
If selling company has corporate shareholder:
pre-liquida+on dividend: tax free since corporate shareholders
generally do not pay corpora9on tax on dividends.
, Voluntary liquida+on = shareholder will be treated as disposing
of its shares in the selling company, so SSE will be poten9ally
available provided all of the condi9ons are sa9sfied.
If selling company has individual shareholders:
Pre-liquida+on dividend = if this falls outside of the individual
shareholder’s dividend nil rate allowance and subject to
income tax at the appropriate dividend. So can claim at least
the 2000, then do voluntary liquida9on.
Voluntary liquida+on = capital receipt for the shareholders and
as individuals they will be liable for CGT as if they disposed of
their shares in the company. Can claim BADR and IR if
applicable.
So – company may pay a pre-liquida9on dividend first to
reduce the value of the company before liquida9on and thus
reduce the capital receipt for shareholders on a liquida9on…
Stamp taxes Stamp duty is payable by a buyer on stock transfer form at a rate of 0.5% SDLT is payable by the buyer on any real property transferred
rounded up to the nearest £5. (SDLT CLAWBACK DOES NOT APPLY HERE – THE COMPANY IS
If target company holds real property which was transferred to it by a NOT BEING TRANSFERRED, IT IS THE BUSINESS).
group company within 3 years before share sale, buyer should beware of
SDLT clawback
VAT A sale of shares is an exempt transac9on for VAT so no VAT is chargeable. Seller will charge VAT unless transac9on is a TOGC.
If target company is a member of the seller’s VAT group both par9es will Seller should include appropriate contractual provisions to
want to ensure that it leaves the seller’s VAT group on comple9on. protect it in case the TOGC excep9on does not apply.
Taxa9on of Corporate Seller Individual Seller
considera9on Corpora9on tax on chargeable Capital gains tax Corpora9on tax on chargeable gains for capital assets (e.g land,
received gains plant and machinery, IP and goodwill created or acquired
before 1/04/02).
However – SSE may apply and if Consider whether business asset
so no corpora9on tax payable. disposal relief (BADR) or investors’ Corpora9on tax on income profits for IP and goodwill created
relief (IR – remember NOT for or acquired on or aLer 1/04/02, stock and work in progress.
employees) applies to the first
£1m/£10m respec9vely of gains over a Where an asset qualifies for capital allowances, balancing
seller’s life9me. charges or allowances may arise for the seller, depending on
Individuals also get an annual the amount of considera9on aOributed to that asset.
exemp9on for CGT.
Deferral of tax If SSE does not apply, consider Consider accep9ng considera9on in If the seller company / another company in its chargeable gains
liability on accep9ng considera9on in shares or loan notes to defer tax group will con9nue to trade following comple9on, consider
considera9on shares or loan notes to defer tax liability BUT exercise cau9on if BADR or rollover relief on replacement business assets.
received? liability. IR would have applied to the original
sale (since deferral = default)
Pre-sale dividend? Corporate shareholders are NOT Individual shareholders DO pay tax on NOT relevant – will not affect the value of the assets
taxed on dividends received so dividends at the dividend rate of purchased.
by reducing the considera9on income tax.
payable for the target company BUT – consider how the considera9on received by the seller
this may reduce the overall tax A pre-sale dividend MAY reduce the company will be passed to its shareholder(s) AFTER
payable by the seller. overall tax payable to a seller who is a transac9on, i.e empty cash shell – dividend or voluntary
basic rate taxpayer. If higher = might liquida9on! Either pre-liquida9on dividend or voluntary
not be that beneficial. liquida9on.
If selling company has corporate shareholder:
pre-liquida+on dividend: tax free since corporate shareholders
generally do not pay corpora9on tax on dividends.
, Voluntary liquida+on = shareholder will be treated as disposing
of its shares in the selling company, so SSE will be poten9ally
available provided all of the condi9ons are sa9sfied.
If selling company has individual shareholders:
Pre-liquida+on dividend = if this falls outside of the individual
shareholder’s dividend nil rate allowance and subject to
income tax at the appropriate dividend. So can claim at least
the 2000, then do voluntary liquida9on.
Voluntary liquida+on = capital receipt for the shareholders and
as individuals they will be liable for CGT as if they disposed of
their shares in the company. Can claim BADR and IR if
applicable.
So – company may pay a pre-liquida9on dividend first to
reduce the value of the company before liquida9on and thus
reduce the capital receipt for shareholders on a liquida9on…
Stamp taxes Stamp duty is payable by a buyer on stock transfer form at a rate of 0.5% SDLT is payable by the buyer on any real property transferred
rounded up to the nearest £5. (SDLT CLAWBACK DOES NOT APPLY HERE – THE COMPANY IS
If target company holds real property which was transferred to it by a NOT BEING TRANSFERRED, IT IS THE BUSINESS).
group company within 3 years before share sale, buyer should beware of
SDLT clawback
VAT A sale of shares is an exempt transac9on for VAT so no VAT is chargeable. Seller will charge VAT unless transac9on is a TOGC.
If target company is a member of the seller’s VAT group both par9es will Seller should include appropriate contractual provisions to
want to ensure that it leaves the seller’s VAT group on comple9on. protect it in case the TOGC excep9on does not apply.
