Planit:UK Sale of a Business Case Study

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This case study is specific to financial planning in the United Kingdom, so has fixed values rather than indices by country. For a similar case study applicable to other countries, please see Planit:Malaysian Sale of a Business Case Study, Planit:Canadian Sale of a Business Case Study, Planit:Singapore Sale of a Business Case Study or Planit:Entering Other Revenues Case Study.

Example Problem Three: Sale of a Business

Add a ‘Sale of Business’ revenue in the Pensions and Other Revenues screen, to complete the effects of a business on Robert and Sally Barber's financial position.

Rob owns a small business, Bookworms Inc., which he plans on selling when he retires. It is worth approximately £150,000, and he feels that this value will grow at about 5% each year until he sells it. When Robert bought the store it was valued at £40,000.

Solution Using Detailed Pension Information:

Use the menu panel to go directly to the Pensions and Other Revenues screen. We are going to add Robert’s business as revenue on retirement in two distinct portions: the taxable portion and the tax-exempt portion:

1. Click on the Add button above the current revenue entries
2. Enter an appropriate description for the non-taxable amount in the Description field.
3. In the drop-down menu beside Owner change the setting to Client
4. In the Amount per Year field enter the amount of the business that is tax-exempt: the £40,000 initial value of the business not liable to capital gains + the £9,600 government tax-exempt amount. So enter £49,600 in this field.

1. Both the From Year and To Year fields should be set to Robert’s target retirement year, since the sale of the business is a one-time revenue
2. The Index Rate can be set to 0% since the non-taxable portion is composed of the starting value and the government exemption, which will not increase over time.
3. For the Percent Taxable enter 0% since this portion is not subject to taxation.

Note: You could enter only one Sale of a Business revenue, but you would have to calculate the taxes payable on the sale of the business, and then compute these taxes as a percentage of average tax on the whole revenue.

1. The Amount on Death can be set to 100%, since the revenue will still come in after death.
2. The Amount on Disability would be 100%.
3. The drop-down menu beside Model As should be set to Defer with Retirement since both the From and To Year of the revenue will be pushed back if Robert delays retirement.
4. Click Save to return back to the summary Pensions screen
5. Now you must enter the remaining portion of the business that is subject to tax. Click Add above the existing revenues.
6. Enter an appropriate description for this taxable portion.
7. The Amount per Year should be set to the total value of the business now, minus the portion that has been entered as non-taxable. So £150,000 - £49,600 = £100,400. Enter £100,400 as the Amount per Year.

1. Set the Index Rate to the 5% growth that Rob estimated.
2. The Percent Taxable should be 18% as identified by the UK government.
3. All data entry fields will be the same except for the Amount, Index Rate and the Percent Taxable. Enter all other fields in the exact same way as they were entered for the non-taxable portion.
4. Click Save