Is selling shares in your company always preferred to an asset deal to reduce tax?

The big benefit of a share deal as opposed to a disposal of assets is the lower tax rate. Particularly where Entrepreneurs Relief is due. CGT on shares could be as low as 10%, which is much lower than a 21-28% corporation tax charge on a company disposal of assets. However, just because a share deal has a lower tax rate does not mean it always results in the lowest tax charge. The gain on the sale of the shares will differ from the gain on the assets for two important reasons: Firstly, the shares are totally different assets to the business owned by the company Secondly, the company is taxed differently on gains to individuals. Therefore when looking at assets versus a share disposal you need to calculate the gains that would arise under each scenario. Important differences could include:

The CGT changes don't apply to disposals by a company and therefore a company will still entitled to indexation relief when calculating its capital gains, whereas individuals will not.

The purchase cost of the assets held by the company could have a different base cost to the base cost of the shares. In particular if the company holds assets with a relatively high base cost and which have been owned for a significant period, it could be entitled to a significant amount of indexation relief to reduce the gain. In this case, a company disposal could lead to a much lower gain than would arise on a sale of the shares and (provided the proceeds could be extracted tax efficiently) the tax payable could also be much lower.

A disposal of the shares will be entitled to the annual CGT exemption

If you're non UK resident you can sell shares free of CGT, whereas a UK company will still be subject to tax on a disposal of the assets even if you're non resident

Personal capital losses can be offset against gains on the shares but not for the company. By contrast if the company has large capital losses this could make the company option much more attractive.

Rollover relief may be available to a company disposal to defer the gain. For shareholders selling their shares they will only be able to defer the gain by reinvesting into shares that qualify under the EIS scheme. Overall, for most shareholders selling the shares will still be preferred if only to avoid the double charge to tax. However this is not necessarily always the case. If the cash could be extracted free of tax or if the company gain is significantly lower a company disposal may result in the lowest tax. For more information see our article: Should you sell company assets or shares to reduce taxes on the sale of your company in 2009?