It is important to plan for your retirement, particularly as a business owner in terms of your exit from the business. Planning should start years in advance of the intended date of retirement.
The possible routes for leaving the business include the following:
- Transfer to a family member
This can have its own difficulties but the possible advantage is CGT business relief may be available if there is a gift element to the transfer. CGT may arise but this may be mitigated by entrepreneur relief or retirement relief.
2. A management buy out
If there is an effective management team who may be in a position to take over the business, this may be an option whereby there could be arrangement of buy back of shares from an exiting shareholder. The benefit of this option is that payment for goodwill is made.
3. An open market sale
Again this can include shareholders receiving value for the goodwill held in a business. Certain discounts may apply however where the goodwill could be connected to the party leaving so anyone buying into that would want some sort of deduction on the actual goodwill value. It can however be difficult to identify a purchaser for an open market sale.
If the above options aren’t available the decision may be made to liquidate the business. The disadvantage with this is that the value of the goodwill is lost and it is likely to result in employees losing their jobs.
Your retirement plan should include taking tax advice to check any possible reliefs available so that whatever decision is made is best for your particular business.