Selling Your Business - A Tool To Reduce Capital Gains Tax

by Jason Russell | Dec. 28, 2012

Entrepreneurs tax Relief in the UK is an excellent incentive for entrepreneurs to create British companies and soon after sell them for a significant profit. Even though Entrepreneurs Relief may assist you in significantly avoiding capital gains tax, if you have the choice, why pay any capital gains tax at all if this can be legally achieved? The question of avoiding capital gains tax on the sale of your business will be addressed later in this article. Capital gains tax advice accelerates wealth building for the Entrepreneur through even greater profit.

How does Entrepreneurs Relief Work?

Entrepreneurs Tax Relief works by substantially reducing the capital gains tax for the entrepreneur descending to 10 % of the gain. The relief is available for the disposal of:

1. all or piece of a business 2. the assets of a business after it has stopped trading 3. shares in a company

This applies up to the maximum lifetime limit of à # 10 million in 2011/12 tax year. Once you have used your à # 10 Million limit you can no longer claim Entrepreneurs Relief. This is another point at which you may choose to look at tax planning.

How are you eligible for Entrepreneurs Relief?

Entrepreneurs Relief is only available for individual tax payers and not companies. You must meet just one of the following criteria in order to be eligible:

1. You are in a business venture as a Sole Trader or as a partner in a business. 2. You hold shares in your personal trading company.

Avoid all Capital Gains Tax on the sale of your Business

If you are selling your business, which may give you a net capital gain of à # 10,000,000 pounds, you will still be eligible for à # 1,000,000 in capital gains tax. This is still considerably fewer than the à # 2,800,000 (28 % in 2011/12) that you would have paid but why even pay this if you don't have to as it is still a huge amount of money? Specialist tax planning companies can legally assist you in already stated matter.

If your aim is to eventually sell your business you may choose to seek specialist capital gains tax advice in advance with the aim of avoiding capital gains tax on the eventual sale. An example would be having the shares in the company owned by an offshore entity that has a favourable dual taxation treaty with the UK.

The first way and perhaps more expensive method of creating a capital gains tax free sale is to create a paper loss equal in magnitude to your gain. This paper loss will effectively reduce your capital gains tax liability to zero. There are a multitude of ways of achieving this and your tax consultant will discuss these options with you.

The second most common method for achieving a capital gains tax free sale is to convert your limited company into a limited liability partnership at a minimum 6 months prior to the sale and consequently your tax consultants will construct the sale to be tax free. The reason that this transaction is completed 6 months prior to the sale is because anti-avoidance legislation will negate some methods if they are made purely for the purpose of avoiding capital gains tax. There needs to be sound business reasons for such a move, which your consultants will inform you of during your consultation.

The results of the previously mentioned tax planning will make your entrepreneurial activities significantly more profitable, especially for the larger companies that are not fully covered by Entrepreneurs Relief or if you have already used your lifetime allowance.

About Jason Russell

The author, Jason Russell is a consultant from The Tax Experts, a UK company that deals primarily in UK tax avoidance schemes and tax planning. The Tax Experts prove to clients on a daily basis that tax in the UK is truly optional. For more information about how you can create and preserve your wealth, please visit The Tax Experts at


About Chia-Li Chien

Chia-Li Chien

Chia-Li Chien, CFP®, CRPC, PMP; Chia-Li “like JOLLY,” Succession Strategist of Value Growth Institute, dedicated to helping private business owners increase their company equity value. She is the award-winning author of the books Show Me The Money and Work toward Reward and a faculty of the American Management Association. Her blog and newsletter was named a Top Small Business Resource by the New York Times You’re the Boss blog. Contact her at or (704) 268-9378 .

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