Mary Drought - Tax

Navigating the Tax Considerations of Selling Your Pharmacy Business

Selling a business, especially something as significant as a pharmacy, requires careful thought, planning, and an understanding of the tax implications. Whether you are preparing to exit soon or just considering the future, there are steps you can take now to ensure a tax-efficient sale and secure your financial future. Here are some key strategies to consider when planning to sell your pharmacy business.

1. Create a Financial Plan: A Roadmap to Your Future.

The first step to a successful business sale is setting a solid financial foundation. A well-crafted financial plan will help you clearly define your personal financial goals and provide insight into how long your assets can sustain you after the sale. This is particularly important because after selling your pharmacy, you’ll transition from drawing a salary from a productive asset to managing a pool of capital needed to support your lifestyle.

Think of it as a roadmap to help guide your decisions, such as when to sell, how to structure the sale, and ensuring that your capital will provide for you in the long term.

2. Maximise Your Pension Contributions.

Before you sell, it’s wise to maximise your pension funding. A pension scheme is one of the most tax-efficient ways to save for retirement, and you can build substantial funds while still running your business.

Consider utilising a small self-administered pension scheme to boost your retirement savings if circumstances allow. Through a combination of personal and company contributions, you can build a pension fund of up to €2 million under current rules. This threshold is set to increase incrementally over the next few years, offering more room for growth as you near your exit.

3. Understand Your Business’s Value.

As you look toward selling, it’s critical to know the true value of your pharmacy business. Knowing your business’s worth will help you plan the sale effectively and understand what potential tax reliefs might apply.

A professional valuation can help you make informed decisions and position yourself to take advantage of tax reliefs that might be available to you. We can help you with this by providing an accurate and tailored business valuation to ensure you’re well-positioned for a successful sale.

4. Optimise Tax Reliefs for the Sale.

One of the most critical aspects of selling your pharmacy is understanding how to minimise your Capital Gains Tax (CGT) liability. CGT is currently taxed at 33%, but there are several tax reliefs available that could reduce or even eliminate this liability, provided certain conditions are met.

Here are some reliefs to consider:

Retirement Relief

Retirement Relief can significantly reduce the tax burden on the sale of qualifying business assets. The amount of relief you qualify for depends on factors like your age and whether the business is sold to a family member. For example, if you sell to a child and are between 55 and 66 years old, you could be eligible for up to €10 million in relief. If you are 70 years or older, the relief reduces to €3 million.

If you’re selling to someone other than a child, the maximum relief is €750,000, decreasing to €500,000 for those aged 70 or older.

Entrepreneurs’ Relief

Entrepreneurs’ Relief provides a reduced CGT rate of 10% on qualifying gains, up to €1 million during your lifetime. This relief is available on the disposal of chargeable business assets, and it can substantially lower your tax liability, making it a valuable tool for business owners looking to sell.

Participation Exemption

If your pharmacy business is structured through a holding company, you may be able to defer CGT on the sale of shares until you take the proceeds out of the holding company. This means you can roll up the capital gains tax-free until the funds are distributed, giving you more flexibility in how and when you draw on the sale proceeds.

Transferring to Family Members

If you’re looking to pass your business on to family members, both CGT and Capital Acquisitions Tax reliefs could make this process more tax-efficient. The transfer of shares to family members may provide significant tax advantages, allowing you to maintain business continuity while benefiting from tax reliefs.

Further information on CGT is detailed in the following Appendix:

Appendix 1: CGT Retirement Relief

Appendix 2:  CGT Entrepreneur Relief

Additional Information for a Smooth Exit

To take advantage of these reliefs and properly plan for your exit, there are some additional details we will need to assess:

  • Business Valuation: A copy of the latest financial statements for your pharmacy will help with the valuation.
  • Ownership History: How long have you owned the business and how long have you been a full-time director?
  • Previous Sales: Have you previously sold shares, and did you claim CGT Retirement Relief or CGT Entrepreneurs Relief?
  • Pension Scheme Details: Understanding the funding and structure of your pension plan is crucial to ensuring it’s adequately prepared for your retirement.

Seek Professional Advice

While these strategies are effective, they’re also complex. Tax laws are subject to change, and every business sale is unique. To ensure that you’re making the best choices for your specific circumstances, it’s essential to seek professional tax advice. The right financial and tax advisors can help tailor these strategies to your situation and ensure that your sale is as tax-efficient as possible.

Conclusion

Exiting your pharmacy business is a significant financial event, and understanding the tax implications is crucial to securing your financial future. By putting a plan in place now, maximising your pension contributions, understanding your business’s value, and taking advantage of available tax reliefs, you can optimise your sale and reduce your tax liability. Fitzgerald Power is here to help and can support you in all aspects of selling your business, from planning and valuation to navigating tax reliefs and structuring the sale. With the right preparation and guidance, you can make this transition with confidence and set yourself up for a successful post-sale future.

If you would like to explore any of the issues raised, contact Noel Winters, Corporate Finance Partner, or, Mary Drought, Tax Manager – Fitzgerald Power at 051-870152/ www.fitzgeraldpower.ie



Further Articles

How to sell a pharmacy?

Selling a pharmacy business can be a stressful, emotional and highly involved process. In many cases, you, or your family,…
Read Blog

Getting Your Pharmacy Business Ready For Sale

Is your pharmacy business at the heart of your long-term investment or retirement plans? Some forethought can ensure that all goes to plan and investment return is maximised for your future.
Read Blog