Selling your business isn’t just about the sale price - you also need to consider how much you’ll actually take home after taxes. Many business owners don’t fully realise the impact of Capital Gains Tax (CGT) and other tax implications until it’s too late. Here’s what you need to know to maximise your after-tax proceeds and avoid costly surprises.

1. Understanding Capital Gains Tax (CGT)

When you sell your business, the profit you make is subject to CGT. This applies whether you’re selling shares in a company or the assets of the business itself.

  • How CGT is Calculated:
    • The difference between your sale price and your base cost (what you originally paid or invested in the business) is your capital gain.
    • For individuals, 40% of the gain is included in taxable income and taxed at your marginal tax rate.
    • For companies, 80% of the capital gain is included in taxable income, making proper structuring crucial.

2. Structuring the Sale for Tax Efficiency

How you structure the deal can significantly impact your tax liability. Consider these options:

  • Selling Shares vs. Selling Assets
    • Selling shares of a company can be more tax-efficient than selling business assets, as CGT is often lower than corporate income tax.
    • Buyers, however, often prefer asset sales because they get a tax benefit from depreciating new assets.
  • Spreading Payments Over Time
    • If part of your sale is structured as an earn-out or seller financing, you may be able to spread CGT liability over multiple years, reducing your annual tax burden.
  • Maximising Allowable Deductions
    • Certain transaction costs and investments can be deducted to reduce taxable capital gains.

3. What Happens If Your Business Is in Your Personal Name?

Many small business owners operate as sole proprietors or in their personal capacity, which means the business is legally tied to them. This can create significant estate planning risks if the business is still in your name when you pass away:

  • Estate Duty Implications: If your business is included in your personal estate, it may be subject to Estate Duty (20% for estates under R30 million, 25% above that).
  • Forced Sale Risk: If your estate does not have sufficient liquidity, your family may be forced to sell the business to pay the estate duty.
  • Potential Solution: Transferring the business into a properly structured entity (like a trust or company) before selling may help minimise risks.

4. VAT Implications of a Business Sale

If your business is VAT-registered, you may need to consider whether VAT applies to the sale:

  • If the sale qualifies as a sale of a going concern, VAT may be charged at 0% (instead of 15%), provided specific conditions are met.
  • If VAT is applicable, the buyer typically bears the cost, but incorrect structuring can lead to unexpected liabilities for the seller.

5. Plan to Keep More of Your Sale Proceeds

Many business owners focus on getting the highest price for their business but fail to consider tax efficiency, leaving money on the table. The best approach? Start tax planning early - before you sell.

  • Work with an experienced tax advisor to determine the best sale structure for your situation.
  • Ensure your business financials and ownership structure are optimised for sale.
  • Consider estate planning implications and whether restructuring your ownership before sale would be beneficial.