05: CGT planning
It is important to take professional advice at or before the start of the sale negotiations. You may be able to structure the deal so as to reduce the gain liable to tax.Advice is especially important if the sale price includes an element dependent on future profits. These arrangements have complex tax consequences and involve some risk.
Paying a substantial dividend before the sale of a company used to be a common way of reducing tax but since the advent of taper relief pre-sale dividends are generally disadvantageous for owners of unlisted companies.
Other ways of reducing CGT include:
- Making use of your spouse’s or civil partner’s annual exemption and lower rate tax band by transferring assets to him or her before sale. Passing assets to a spouse or civil partner is free of CGT. However you should make the transfer as far ahead of the sale as possible otherwise HM Revenue and Customs might ignore its effect for CGT purposes and tax you on the full gain on sale.
- Going abroad before sale, but you need to time your departure carefully and stay away for at least five complete tax years.
- Reinvesting your gains in shares that qualify under the enterprise investment scheme (EIS). You must reinvest within a period starting one year before and ending three years after the sale of your business. This is generally a high-risk strategy as the reinvestment must be in unlisted shares (which includes shares quoted on the alternative investment market) in a company carrying on a qualifying trade.
