Tax When Selling a Business in the UK: CGT, Business Asset Disposal Relief and More

The tax you pay when selling a business in the UK depends on the sale structure, who owns the business and how the proceeds are paid. Individual shareholders, sole traders and partners may face Capital Gains Tax, while a limited company selling assets will usually pay Corporation Tax and shareholders may then face further personal tax when extracting the proceeds. Business Asset Disposal Relief may reduce the tax on some qualifying gains, so the structure should be reviewed before Heads of Terms are agreed.

Tax can materially affect how much you retain when selling a business.

The amount due depends on several factors, including whether you operate as a sole trader, partnership or limited company, whether the buyer acquires shares or business assets, how the consideration is paid and whether any tax reliefs are available.

For individuals, a business sale may create a Capital Gains Tax liability. Where a limited company sells its assets, the company normally pays Corporation Tax on any taxable profits or chargeable gains. If the remaining proceeds are then paid to shareholders, further personal tax may arise.

This means two offers with the same headline price can leave the seller with very different net proceeds.

Tax planning should therefore begin before you agree a deal structure or sign Heads of Terms. Once the principal terms have been fixed, some planning opportunities may be unavailable or commercially impractical.

How much tax do you pay when selling a business?

The tax you pay when selling a business in the UK depends on what is being sold and who owns it.

• Sole traders and partners may pay Capital Gains Tax when disposing of business assets.
• Individual shareholders may pay Capital Gains Tax when selling shares in a limited company.
• Limited companies selling assets usually pay Corporation Tax on taxable profits and chargeable gains.
• Shareholders extracting proceeds after a company asset sale may then face further personal tax.
• Qualifying individuals may be able to claim Business Asset Disposal Relief.
• VAT, Stamp Duty and property taxes can also affect some transactions, although certain costs may fall primarily on the buyer.

Capital Gains Tax is charged on the gain rather than the total sale proceeds. The gain is broadly the disposal proceeds less allowable acquisition costs and certain allowable expenditure.

Tax treatment at a glance

This article provides general information only and is not financial, accounting, tax, legal or investment advice. Tax outcomes depend on individual circumstances and rules can change. Consult a qualified accountant or tax adviser before agreeing the structure or timing of a business sale.

Why the structure of a business sale matters for tax

One of the most important distinctions is whether the transaction is a share sale or an asset sale.

The buyer and seller may have different preferences.

A seller who owns shares personally may prefer a share sale because there is generally one disposal at shareholder level. A buyer may prefer an asset purchase because it can choose which assets and liabilities to acquire.

Tax should not be considered in isolation. The structure also affects:

• Historic liabilities
• Contracts
• Employees
• Property
• Intellectual property
• Regulatory permissions
• Due diligence
• Warranties and indemnities
• Transaction complexity

The commercial and legal implications should be considered alongside the tax position.

Share sale versus asset sale

Tax on a limited-company share sale

In a share sale, the shareholders sell their shares to the buyer.

The company continues to own its assets, contracts, employees and liabilities. The purchase price is normally paid to the shareholders rather than to the company.

An individual shareholder may pay Capital Gains Tax on the gain.

A simplified calculation is:

Sale proceeds
minus allowable cost of the shares
minus qualifying transaction costs
equals chargeable gain

Allowable costs may include the original amount paid for the shares and certain incidental costs of acquisition or disposal. The correct treatment depends on the circumstances.

Example of Capital Gains Tax on a share sale

Assume an owner sells their shares for £1,500,000.

Their qualifying costs are:

• Original share cost: £10,000
• Allowable legal and transaction costs: £30,000

The simplified gain would be:

The actual tax liability would depend on:

• The owner’s available annual exempt amount
• Capital losses
• Whether Business Asset Disposal Relief applies
• Previous BADR claims
• The timing of the disposal
• The individual’s wider taxable income and gains
• The treatment of any deferred or contingent consideration

For the 2026/27 tax year, the individual Capital Gains Tax annual exempt amount is £3,000. Ordinary CGT rates on non-residential-property gains are generally 18% to the extent gains fall within the remaining basic-rate band and 24% above it.

These figures are current at the publication review date and should be checked before the article is updated or relied upon.

Business Asset Disposal Relief

Business Asset Disposal Relief, commonly abbreviated to BADR, was previously called Entrepreneurs’ Relief.

It can apply a reduced rate of Capital Gains Tax to qualifying disposals of certain business assets or shares.

For qualifying disposals made on or after 6 April 2026, the BADR rate is 18%. The lifetime limit remains £1 million of qualifying gains. Gains above the available lifetime limit are taxed under the normal CGT rules.

BADR is not automatic. The seller must satisfy the relevant conditions and make a valid claim.

When can Business Asset Disposal Relief apply?

Depending on the circumstances, BADR may be available when an individual:

• Sells all or part of a sole-trader business
• Disposes of an interest in a business partnership
• Sells qualifying shares in a personal trading company
• Disposes of certain assets associated with a qualifying business disposal
• Closes a qualifying business and disposes of its assets within the permitted period

The precise conditions differ according to the type of disposal.

BADR on the sale of company shares

For a typical sale of shares in a trading company, the individual will generally need to satisfy conditions relating to:

• Their employment or office within the company or group
• The company’s trading status
• Their shareholding and voting rights
• Their economic entitlement
• The qualifying ownership period

The conditions normally need to be met for at least two years before the disposal, although specialist rules and exceptions can apply.

Do not assume that holding 5% of the shares by itself guarantees relief. Different share rights, growth shares, preference shares, options and recent reorganisations can affect eligibility.

BADR calculation example

Assume an individual makes a qualifying gain of £1,200,000 on a share sale in the 2026/27 tax year and has never used BADR before.

Ignoring the annual exemption and other gains or losses for simplicity:

This is a simplified illustration. The actual calculation may be affected by the annual exempt amount, losses, income, previous disposals and other factors.

What our experts say:

Check BADR eligibility before Heads of Terms

Business Asset Disposal Relief should be reviewed before the sale structure and timetable are fixed.

Seemingly routine events can affect eligibility, including:

• Issuing new shares
• Changing share rights
• Creating a holding company
• Reducing an owner’s voting entitlement
• Moving assets outside the trading company
• Allowing investment activities to become substantial
• Resigning as a director or employee too early
• Agreeing an unconditional contract at the wrong time

A seller should ask a tax adviser to review the share capital, trading history, employment status and proposed transaction rather than relying on a general checklist.

How much does BADR save in 2026/27?

From 6 April 2026, qualifying BADR gains are taxed at 18%.

The standard higher CGT rate on most other assets is 24%, so BADR can produce a six-percentage-point reduction on gains within the available £1 million lifetime limit.

At the maximum available lifetime amount, the potential rate saving compared with 24% is:

£1,000,000 × 6% = £60,000

The saving may be lower where part of the gain would otherwise fall within the 18% ordinary CGT band.

BADR remains valuable, but the 18% rate means it should not be the only factor driving a transaction. Deal certainty, purchase-price structure, legal exposure and the amount paid at completion may have a substantially larger financial effect.

Tax on an asset sale by a limited company

In an asset sale, the company sells some or all of its business assets.

These might include:

• Goodwill
• Intellectual property
• Property
• Plant and machinery
• Equipment
• Stock
• Customer contracts
• Domain names
• Trading names

A limited company does not normally pay Capital Gains Tax. Instead, it pays Corporation Tax on its taxable profits, including chargeable gains on relevant asset disposals.

The main Corporation Tax rate is currently 25% for companies with profits above the upper threshold. A 19% small-profits rate applies to companies with profits of £50,000 or less, with marginal relief between £50,000 and £250,000. These thresholds can be reduced where the company has associated companies or a short accounting period.

Potential double layer of tax

Following an asset sale, the purchase price is paid to the company.

If the shareholders then want to receive the money personally, a second tax charge may arise when the funds are extracted.

Depending on the circumstances, extraction might involve:

• Salary or bonus
• Dividends
• Repayment of amounts owed to the shareholder
• A distribution during liquidation
• Another capital or income distribution

This is why sellers sometimes describe an asset sale by a company as potentially creating two layers of tax:

1. Corporation Tax within the company
2. Personal tax when the remaining proceeds are paid to shareholders

The tax result depends on the assets sold, the company’s tax position and how the proceeds are extracted. It should be modelled rather than estimated using one headline rate.

Simplified asset-sale example

Assume a company sells assets and realises taxable profits and gains of £1,000,000.

If the full amount were taxed at a 25% Corporation Tax rate:

The £750,000 belongs to the company. The shareholders’ personal tax position depends on how it is subsequently distributed.

This illustration does not account for asset base costs, capital allowances, losses, different tax treatment for intangible assets, marginal relief or extraction planning.

What our experts say:

Model the seller’s net position

Do not compare a share-sale offer with an asset-sale offer based only on the price.

Ask your accountant or tax adviser to prepare a comparison showing:

• Tax payable by the company
• Tax payable by each shareholder
• Debt repayment
• Professional fees
• Amount paid at completion
• Deferred and contingent consideration
• Funds remaining within the company
• Cost and timing of extraction
• Net proceeds available to the owner

A buyer may increase an asset-sale offer to reflect some of the seller’s disadvantage, but this is a commercial negotiation rather than a tax entitlement.

Tax on an asset sale by a sole trader or partnership

A sole trader does not sell shares because there is no separate company ownership interest.

Instead, the owner normally sells individual business assets.

A partnership sale may also involve the disposal of partnership assets or each partner’s interest in them.

Sole traders and individual partners may pay Capital Gains Tax on gains from disposing of relevant business assets. Limited companies instead pay Corporation Tax on profits from selling assets.

Different parts of the transaction may receive different tax treatment.

For example:

• Stock may create trading income rather than a capital gain
• Plant and machinery may create capital-allowance adjustments
• Property may generate a chargeable gain
• Goodwill may create a capital gain, subject to the applicable rules
• Debtors may be dealt with through the sale agreement or collected separately

The sale agreement should allocate the purchase price between assets on a commercially supportable basis. The buyer and seller may have different tax preferences, so the allocation can become a point of negotiation.

Data insight:

The headline sale price is not the taxable gain

Capital Gains Tax is charged on the gain, not simply on the total amount received.

The calculation can take account of allowable acquisition costs, enhancement expenditure, incidental disposal costs, available capital losses and relevant reliefs.

This distinction is particularly important where:

• Property has been owned for a long period
• Shares were acquired in several transactions
• The owner subscribed additional capital
• Professional transaction fees are substantial
• A previous reorganisation affects the base cost
• Part of the consideration is deferred
• The seller has brought-forward capital losses

Records supporting the original cost and later expenditure should be collected early. Reconstructing them during due diligence or immediately before a tax filing can be difficult.

Tax on deferred consideration

A buyer may pay part of the price after completion.

For example:

• £1 million at completion
• £300,000 after 12 months
• £300,000 after 24 months

The deferred amount may be fixed, conditional or represented by a loan note.

The tax treatment depends on the legal form of the arrangement. The seller may have a tax liability before all cash has been received, depending on how the consideration is structured.

Questions to address include:

• Is the deferred amount fixed or contingent?
• Is it represented by cash, shares or loan notes?
• When is the disposal treated as taking place?
• When does the tax become payable?
• Is any deferral relief available?
• What happens if the buyer does not pay?
• Does interest create a separate income-tax liability?
• Can BADR apply to the relevant part of the gain?

The commercial and tax drafting must align. Describing an amount as “deferred consideration” does not determine its tax treatment by itself.

Tax on earnouts

An earnout makes part of the sale price dependent on the company’s future performance.

The final amount may be based on:

• Revenue
• EBITDA
• Gross profit
• Customer retention
• Contract wins
• Another financial or operational target

The tax treatment of an earnout can be complex because the final value may be unknown at completion.

Depending on the drafting, a value may need to be placed on the right to receive future consideration. Different rules may apply where the earnout is settled through cash, shares or loan notes.

An earnout can also create employment-tax concerns if payment is connected to the seller remaining employed after completion. The sale agreement and service arrangements must clearly distinguish purchase consideration from remuneration.

Specialist advice is particularly important where the seller must continue working in the company to receive the earnout.

VAT on the sale of a business

VAT can affect an asset sale.

A sale of individual assets by a VAT-registered or VAT-registerable business would normally follow the VAT liability applying to those assets.

However, where a business or part of a business is transferred as a going concern and the necessary conditions are met, the transfer may be treated as neither a supply of goods nor a supply of services. VAT is then not charged under the Transfer of a Going Concern rules.

TOGC treatment is not optional simply because the parties prefer it. The factual and legal conditions must be satisfied.

Potential areas requiring particular care include:

• Property subject to an option to tax
• The buyer’s VAT registration status
• Whether the buyer will continue the same type of business
• A sale of only part of the operation
• Timing gaps between seller and buyer trading
• Transfers involving VAT groups
• Whether the transaction is a business transfer or merely an asset sale

Incorrect VAT treatment can create a significant cash-flow and compliance problem, so it should be considered before the price and contract are finalised.

Stamp Duty on a share sale

The buyer of shares in a UK company usually pays Stamp Duty or Stamp Duty Reserve Tax at 0.5% of the consideration, subject to the relevant rules and exemptions.

Although this is generally a buyer cost, it may affect negotiations.

For example, a buyer comparing a share acquisition with an asset purchase may consider:

• Stamp Duty on the shares
• Property transaction taxes
• VAT
• The tax basis of acquired assets
• Future tax deductions
• Historic liabilities inherited with the company

Sellers should understand these buyer considerations because they can influence the offered price and preferred structure.

Planning to sell your business?

The tax position is only one part of a successful sale. You also need a realistic valuation, organised information, credible buyers and a deal structure that balances value with certainty.

Valius brings UK business owners, serious buyers and advisers together through one modern platform designed to make business acquisitions simpler, more transparent and less fragmented.

Register with Valius to start preparing your business for potential buyer interest.

Can you avoid tax when selling a business?

You cannot normally eliminate tax simply by describing or arranging a transaction differently.

However, legitimate tax planning can help ensure you:

• Claim reliefs for which you qualify
• Use available capital losses correctly
• Deduct allowable transaction costs
• Choose an appropriate sale structure
• Avoid unintentionally losing relief
• Plan the timing of the disposal
• Consider how deferred consideration is taxed
• Review how company proceeds will be extracted
• Use available spouse or civil-partner planning where commercially and legally appropriate
• Keep sufficient evidence to support the tax calculation

The objective should be to manage tax lawfully, not to conceal gains or create artificial arrangements.

Legitimate ways to reduce or defer tax

Potential planning areas may include:

Business Asset Disposal Relief

Qualifying sellers may access the 18% BADR rate on gains within their available lifetime limit.

Capital losses

Allowable capital losses may reduce taxable gains, subject to the rules governing how and when they are used.

Allowable costs

Qualifying acquisition, enhancement and disposal costs may reduce the chargeable gain.

Business Asset Rollover Relief

Where qualifying business assets are sold and the proceeds are reinvested in replacement qualifying assets, Business Asset Rollover Relief may defer some or all of the gain.

The replacement assets generally need to be acquired within three years after the disposal or up to one year before it. Both the old and new assets must meet the relevant trading-use conditions.

This relief is more likely to be relevant where the owner or business is reinvesting rather than making a complete exit.

Spouse or civil-partner planning

Transfers between spouses or civil partners can sometimes be made on a no-gain, no-loss basis, but transferring shares shortly before a sale requires careful consideration.

The recipient must independently satisfy any conditions for relief, and pre-sale arrangements may have wider legal, commercial and anti-avoidance implications.

Timing

The timing of a disposal can affect:

• The tax year in which the gain arises
• The applicable rates
• The availability of relief
• The filing and payment deadline
• Whether qualifying ownership conditions are met

Timing should be driven by genuine commercial requirements and reviewed before an unconditional sale contract is signed.

What our experts say:

Tax planning is not last-minute form filling

The most effective tax planning normally takes place before the seller has committed to a buyer’s structure.

A tax adviser may need time to review:

• The company’s share history
• Previous reorganisations
• Shareholder employment status
• Trading and investment activities
• Associated companies
• Property ownership
• Director loan accounts
• Available losses
• Family shareholdings
• Proposed deferred consideration
• The intended use of a holding company
• How proceeds will be extracted

Last-minute restructuring may fail to achieve the intended outcome and can introduce additional tax, legal and due-diligence risks.

Using a holding company

Some owners operate through a holding-company structure.

Where one company sells shares in a trading subsidiary, the Substantial Shareholding Exemption may exempt a qualifying gain from Corporation Tax if the relevant conditions are met. The exemption applies to certain disposals of substantial shareholdings by companies.

This does not mean the individual owner receives the proceeds tax-free.

The sale proceeds remain within the corporate group. Personal tax may arise when value is extracted by the shareholder.

A holding company can be useful for commercial and investment planning, but introducing one immediately before a sale is a specialist area. Share exchanges, anti-avoidance provisions and BADR implications should all be reviewed.

Tax when closing a company after selling its assets

A company may sell its business and later be closed.

Depending on the circumstances, closure could involve:

• Voluntary strike-off
• A Members’ Voluntary Liquidation
• Another formal liquidation process

Distributions in a formal liquidation are commonly treated as capital, subject to the relevant rules. In other situations, distributions may be taxed as income.

Anti-avoidance rules can apply where an individual closes a company, receives a capital distribution and then continues the same or a similar activity.

The appropriate route depends on:

• The amount retained in the company
• Whether it is solvent
• The owner’s future plans
• BADR eligibility
• The company’s liabilities
• The cost of liquidation
• Anti-avoidance considerations

An owner should obtain tax and insolvency advice before extracting funds or applying to strike off the company.

How are sale expenses treated?

Some transaction expenses may reduce the taxable gain or the company’s taxable profits, while others may not be deductible.

Potential expenses include:

• Legal fees
• Accountancy fees
• Broker fees
• Corporate finance fees
• Valuation costs
• Due-diligence preparation
• Success fees
• Employee bonuses
• Property costs
• Debt repayment charges

The treatment can depend on:

• Who incurred the cost
• Whether the shareholder or company is the seller
• What the service related to
• Whether the expense is capital or revenue
• Whether it relates wholly and exclusively to the disposal
• How a success fee is structured

Invoices and engagement letters should clearly identify who received the service and what work was performed.

When is Capital Gains Tax reported and paid?

The reporting and payment process depends on the asset, seller and transaction.

Business disposals by individuals are commonly reported through Self Assessment, although separate rules and shorter deadlines can apply to disposals of UK property.

A BADR claim must be made within the applicable time limit. For a qualifying disposal in the 2025/26 tax year, for example, the published claim deadline is 31 January 2028.

The deadline for a later tax year should be confirmed when the disposal occurs.

Do not wait until the tax return is due to assemble the information. Keep copies of:

• Sale agreements
• Completion statements
• Share subscription records
• Historic acquisition documents
• Professional-fee invoices
• Valuation reports
• Reorganisation documents
• Loan-note documentation
• Earnout calculations
• Evidence supporting relief claims
  
  

Data insight:

A business sale may involve several separate taxes

A single transaction can involve more than one tax.

Depending on the structure, the parties may need to consider:

• Capital Gains Tax
• Corporation Tax
• Income Tax
• National Insurance
• VAT
• Stamp Duty or SDRT
• Stamp Duty Land Tax or the relevant devolved property tax
• Employment taxes
• Inheritance Tax implications
• Tax on interest
• Tax on future distributions

This is why applying one percentage to the headline price rarely produces an accurate estimate of net proceeds.

The seller’s tax model should reflect the legal steps in the actual transaction rather than treating the sale as one undivided payment.

Tax planning timeline for a business sale

Tax questions to ask before selling

Ask your accountant or tax adviser:

1. Is a share sale or asset sale likely to produce the better net result?
2. Do I qualify for Business Asset Disposal Relief?
3. How much of my £1 million lifetime BADR limit remains?
4. Could any planned action affect my eligibility?
5. What is the tax base cost of my shares or assets?
6. Are there capital losses available?
7. Which transaction costs are allowable?
8. How will deferred consideration be taxed?
9. How will an earnout be valued and reported?
10. Could continued employment affect the treatment of future payments?
11. What tax will the company pay?
12. How will I extract any proceeds held by the company?
13. Does VAT apply, or could the sale qualify as a TOGC?
14. Are property taxes relevant?
15. When will tax need to be reported and paid?
16. What records should I retain?
17. Could a family or spouse shareholding affect the outcome?
18. Are there any anti-avoidance rules to consider?
19. What happens if the buyer defaults on a deferred payment?
20. What will I retain after tax, fees, debt and other adjustments?

Common tax mistakes when selling a business

Assuming BADR applies automatically

Eligibility depends on detailed conditions. The relief should be checked rather than assumed.

Agreeing an asset sale without modelling extraction tax

The company may pay tax on the sale before shareholders face tax on receiving the remaining money.

Looking only at the headline tax rate

The rate is only one part of the calculation. Base cost, losses, reliefs, transaction expenses and payment structure also matter.

Restructuring immediately before sale

A late reorganisation can affect reliefs, create anti-avoidance concerns and delay due diligence.

Ignoring deferred consideration

Tax may become payable before the seller receives all the cash.

Treating an earnout as guaranteed sale proceeds

An earnout may have complex tax treatment and may never be paid in full.

Failing to distinguish company and personal expenses

The company and shareholders are separate taxpayers. The person incurring a cost can affect whether it is deductible.

Forgetting VAT and property taxes

An asset sale may involve VAT or property-related taxes in addition to Corporation Tax or CGT.

Losing historic records

Missing share-acquisition or reorganisation records can make it harder to establish base cost and defend the tax calculation.

Taking tax advice after signing Heads of Terms

By then, the buyer may expect a particular structure and resist changes.

Plan your sale around net proceeds, not just price

Tax is an important part of selling a business, but it should be considered alongside valuation, buyer credibility, legal risk and payment certainty.

A strong plan should help you understand:

• What is being sold
• Which taxpayer receives the proceeds
• Which taxes may apply
• Whether reliefs are available
• When the tax becomes payable
• How much cash you receive at completion
• How much remains at risk
• What you are likely to retain after tax and fees

Valius was built to make buying and selling UK businesses simpler, more accessible, more transparent and less fragmented.

Register with Valius to join 1,000+ business buyers and sellers already doing business on Valius.