When you start the process of buying a business, it’s common to feel overwhelmed by the complexities, especially when it comes to the legal details. At WSP Solicitors, we’re known...
Buying a Business: Tax Issues
Tax issues you may face when buying a business
For any buyer buying a business, the way the purchase is structured is of paramount importance and should be agreed at the earliest stage possible.
Usually there are two main options available: an asset purchase (you buy the assets of the target company from that company so it is the company that is the seller) or a share purchase (you buy the shares of the company from the shareholders so the shareholders are the sellers).
No stamp duty is payable on the purchase of assets but stamp duty land tax may be payable on properties (the exact amount dependent on the value of those properties).
The buyer will not “inherit” any tax liabilities of the company and this has the added advantage of simplifying the acquisition.
One down side may be that any tax losses within the company which may have been available to set off against future profits will be lost and so not available to the buyer.
Stamp duty at 0.5% is payable on the price paid for the shares.
All tax liabilities of the target company remain with that company so in effect the buyer “inherits” them. This also complicates the acquisition as the buyer will want to carry out due diligence in respect of taxation issues and to have the protection of warranties and indemnities in case those liabilities are greater than expected.
Of course, what is best for the buyer may not be best for the seller as I explain in my article Selling a Business: Tax Issues.
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