What options do UK entrepreneurs have to maximise returns on the sale of their business? Katharine Haggie, Partner at award-winning tax and accounting specialists Rawlinson & Hunter, provides expert insights into this subject drawing from personal experience advising families on structuring business and personal interests. Our discussion delves into the criteria a business owner should consider when contemplating a move abroad. We also examine non-tax-related considerations and what to be wary of once you have taken the leap.

What criteria should a business meet for it to make sense for the owner to move abroad ahead of a sale?

There are no specific criteria for the business. Business owners who are resident in the UK are liable to capital gains tax. The key question is whether the gain on the disposal of the business, and therefore the tax liability, is sufficiently large for the individual to seek to reduce that tax with a relocation.

So, what does the individual need to do to fall outside the scope of UK capital gains tax which is currently charged at 20% on the disposal of a business, regardless of where the business is located?

The individual needs to become a non-resident in the UK in the tax year of the disposal and remain non-resident for a total of five years (there is anti-avoidance that prevents individuals from relocating overseas for a shorter period of time without paying the tax). Residence in the UK is formulaic now and, subject to not meeting any of the "automatic" tests often comes down to a question of days spent in the UK calculated according to an individual's "ties" to the UK. For business owners leaving the UK and seeking non-residence, considering typical "ties" the maximum number of days the individual may spend in the UK is frequently 90 days, but is entirely fact specific. Accordingly, days need to be monitored and good records should be maintained. Failure to monitor may require significant admin hours of working through boarding passes and credit card statements. It is fair to say that barely a day goes by without some form of local spending and, albeit an arduous task, it is an accepted method to identify an individual's location by HMRC.

Which countries offer the most favourable tax regimes for entrepreneurs selling their businesses?

It is reasonable to assume that the tax in question will be capital gains tax on the disposal of a business in most jurisdictions. Notwithstanding this, the tax regime of the country to which the individual is to relocate should be considered more widely, particularly in relation to its income and wealth tax regimes.

• The individual may be selling their business in a few years’ time and may draw a significant salary or extract significant dividends prior to the disposal. Following the sale of the business, the individual is likely to generate liquidity which may be invested, returning income as well as gains.
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• Wealth tax is generally assessed on an annual basis on asset value and can be levied in jurisdictions which may otherwise appear attractive for relocations.

Popular jurisdictions for relocations at present, where there is a favourable tax regime for income tax and the sale of a business may be tax free include; Italy, Greece, Malta, Monaco (and Portugal). Spain also has an attractive income tax regime but there is a wealth tax to be aware of. These are the principal European jurisdictions known for their favourable tax regimes. Switzerland can be added to this list with a focus on the specific Canton due to the dissolved powers, wealth tax is levied in Switzerland. It may also be worth highlighting that the commute from Italy to Monaco may be shorter than many of the daily trudges into central London.

The Channel Islands could be considered which provide proximity to the UK. Further afield, the UAE is increasingly a popular choice, although there is very limited taxation in the UAE, it has entered into double tax treaties which can be a significant benefit in some scenarios.

In Asia, Singapore continues to present plenty of opportunity to attain tax efficiencies with Hong Kong establishing many similar regimes.

What are the residency requirements in these tax-favourable countries, and how might they impact an entrepreneur's move?

Residency varies and specific advice would need to be taken, broadly, 183 days would be a reasonable benchmark. Immigration advice is also likely to be required (particularly for non-EU passport holders).

Taxpayers may find their focus to be on non-residence in the UK rather than residence elsewhere.

Neighbouring regimes in the border-free Schengen offer very different tax incentives, the authorities are not naïve to the freedom this offers and have their own mechanism of testing where taxpayers or potential taxpayers are spending their time. In the past this has been supermarket shopping and restaurant dining receipts, water and electricity bills. In 2024, it seems the extension to our arms and therefore data roaming is all too easy to trace.

How does age and family situation affect the decision on which jurisdiction to relocate to?

People and relationships are central and those who will be making the move with the business owner, or indeed not, are equally as important in any decision making process, particularly since the relocation is not a one year venture.

Families with children have decisions to make around education, accessibility to international or local schools, ability to integrate themselves and their children into the community.

Those without children of school age may find more freedom in their decisions and the five years (or more) they choose to stay out of the UK may be more flexible. Notwithstanding this, it remains important to many to settle with a degree of permanence and although schooling may drop off the list, other factors remain, such as the culture and community and the accessibility of the lifestyle they wish to enjoy.

Where there are adult children, children in boarding school or even grandchildren, elderly parents, nieces, nephews, siblings, etc, proximity to these individuals could be central to decision making. The search may therefore be centred around access to the UK.

A cultural fit is likely to be key to ensuring the move is enduring.

You mentioned international schools and culture being a factor in deciding which country to move to, what other concerns do your clients have beyond tax?

The list is personal and potentially long, but some factors not already mentioned include time zone, weather, language, infrastructure, health care, approach to doing business, political stability, crime and security, access to professionals, flight paths, hobbies, existing properties and relationships with people and countries.

We would encourage detailed consideration of what daily life might look like, including the identification of important accessories from pets to classic car collections. Potentially expensive barriers and administrative challenges exist.

Hypothetically, if you were selling your own business, which country would you move to and why?

Switzerland, mainly because of its topology! Language may be a hurdle I would have to overcome but with numerous valleys in France, Switzerland and Italy within easy reach and punctual Swiss train network to boot, weekends are complete. The flight time is short (once you get off the ground) and the Eurostar will, one day, have established its policy on the transportation of ice axes so we can carry mountaineering equipment without the debate. Travelling without skis, multiple helmets, axes, crampons etc would be welcomed.

Conclusion

As can be gathered from our discussion, the decision for UK entrepreneurs to relocate abroad to maximise returns on the sale of their business involves careful consideration of multiple factors, including tax regimes, residency requirements, and personal circumstances. Katharine's insights highlight the complexities and potential benefits of such a move. If you find yourself uncertain about the best approach for your business sale and relocation strategy, we encourage you to get in touch. We would be happy to help you navigate these decisions and optimise your financial outcomes.

Mark Estcourt

CEO at Cavendish Family Office
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