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TECHNOLOGY REPORT

employees of the company”. can prove troublesome if the commercials of the transaction have at death), while BADR reduces tax rates
It’s also possible to pass a company to not been finalised.” She explains that could leave much of the on gains made following a disposal of
the next generation. However, Summers commercial negotiations – price for example – to the seller which certain shares.
says that this requires meaningful can be difficult to manage. In her opinion, corporate finance
thought and planning, including advisers help the process through to completion and deal with
whether the company or business is set sticking points. Main tax implications
up for this, the children are actively The starting point for Thornley is that
working in the business, and whether Maintaining confidentiality
there are any third-party shareholders Of course, confidentially is critical, especially in early stages of “if shares in a family company are gifted
who may be affected. She says that the transaction, when one or more bidders may be interested in to the next generation, it is necessary to
“where non-related parties have gone making an offer, especially when such a bidder is a competitor. consider both the upfront gains implica-
into business together it may be the case This is the reason why Summers says that it is standard practice to tions and the longer term inheritance
that those individuals are reluctant to put in place a non-disclosure agreement (NDA) that provides issues.”
agree to an automatic transfer to a She says that when a gift is made to a
child”. Beyond this is the matter of how “stringent undertakings from potential purchasers that any infor- connected party – the next generation –
mation they acquire will be utilised solely for the purpose of ana-
the children will fund the acquisition.
lysing the transaction”. although the parent may not be receiv-
Confidentiality also allows for reassuring conversations about
How best to move the business on? the future of the business to occur when the time is right to intro- ing payment for the shares, for tax
Changing ownership of a business is, duce the new owners. purposes they are deemed to be dispos-
in essence, about moving value to a new However, it needs to be recognised that a purchaser may want ing of the shares at market value. And
owner. Summers highlights that there access to some employees or key customers and that this can be this can trigger a CGT gain.
are two mutually exclusive ways to do difficult to manage and so may need additional NDAs. It’s all rather difficult, but Thornley
this: a share sale or an asset sale, with says that if shares are unquoted and over
buyers and sellers take opposing stances. Establishing value 80% of the company activities relate to a
“They are,” she says, “very distinct trans- Lastly, when it comes to what a business is worth, Summers trade, the recipient and donor can make
actions that result in different liabilities
Succession and selling up and tax positions which often have an states that “understanding what the market may consider a rea- a joint election to ‘hold-over’ any gain.
sonable price may influence the type of transaction undertaken.”
This means the donor does not have to
impact on price.”
She points out that often in sales or investments an ‘enterprise
In a share sale a buyer is purchasing
the entire entity, which includes all value’ or ‘price to earnings ratio’ are used. This takes the profits of pay CGT on the disposal. But Thornley
offers a note of caution: “While claiming
assets, liabilities and obligations, a ‘warts a business and seeks to determine an appropriate multiplier of holdover can help to facilitate a gift by
and all’ approach. But in an asset sale, that figure to land on a price. For example, using a price to earn-
the buyer ‘cherry picks’ only the assets ings ratio of five for a business that makes £500,000 post tax prof- reducing up-front tax costs for the
they want. its would mean that the business would be valued at £2,500,000. donor, it has consequences for the recip-
Summers explains that “in a share But determining what the appropriate multiplier is often tricky. ient. They will effectively acquire the
sale, there would usually be far more Certain sectors, such as tech start-ups, have higher multiples due shares at the original cost to the donor –
detailed due diligence along with more to the level of rapid growth expected. Similarly, en vogue sectors which could be very low if the donor
detailed and lengthy assurances or ‘war- can carry higher multipliers – in 2023 there were good multipliers founded the company – and will there-
ranties’ provided by the exiting seller.” for ecommerce and professional services sectors. And to this she
Generally speaking, a seller is likely to fore have a much bigger CGT bill them-
prefer a share sale while a buyer may adds that “proven annual profits can also realise a higher multiple selves in the future.”
prefer an asset purchase. as investors will give higher multiples to those business in which And then when the donor dies
they can see scalability.” Known as a ‘buy and build’, she explains Thornley points out that any gifts made
that private equity investors pay higher multiples for those busi-
The need for good advice within the previous seven years must be
nesses they believe can be grown quickly and then sold again.
Since selling a business is often the Ultimately, Summers thinks that a combination of thought, taken into account when calculating
result of a lifetime of work it’s important early planning and good advice will make for a good sale. IHT.
that sellers surround themselves with However, there is help for business
the right team of advisers. In Summers’ owners. As Thornley explains, “if the
view it’s best to “appoint advisers that THE TAX PERSPECTIVE
understand your marketplace, the type company shares qualify for 100% BPR,
of business you have and have experi- In-built complexity this reduces the value of the shares on
ence in similar successful exits”. Tax is a complex subject and Helen Thornley, a technical officer which IHT is payable to nil. But to qual-
It’s possible, however, that the process at the Association of Taxation Technicians says that there are two ify, the company must be ‘wholly or
starts after an approach from a buyer. In key taxes and associated reliefs – Inheritance tax (IHT) and mainly’ trading – which broadly means
this situation Summers warns that the Business Property Relief (BPR), and Capital Gains Tax (CGT) and over 50% of the activities relate to trad-
need for specialist advice should not be Business Asset Disposal Relief (BADR) and gift relief.
overlooked. She says: “The process may In overview, BPR reduces IHT charges on gifts of qualifying ing – and the donor must have held the
go straight to the legal advisers, but this business assets down the generations (and on business assets held shares for two years before the gift”.

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