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.
| Sale structure | Who is taxed? | Main tax that may apply |
|---|---|---|
| Sole trader asset sale | Individual owner | Capital Gains Tax on qualifying gains |
| Partnership asset sale | Individual partners | Capital Gains Tax on each partner’s share |
| Limited-company share sale | Individual shareholders | Capital Gains Tax on the gain from selling shares |
| Limited-company asset sale | The company, then potentially shareholders | Corporation Tax on company gains, with possible further personal tax on extraction |
| Corporate shareholder selling a subsidiary | Parent or holding company | Corporation Tax unless an exemption applies |
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.
The tax you pay when selling a business in the UK depends on what is being sold and who owns it.
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.
|
Sale structure |
Who sells? |
Main tax that may arise |
Important consideration |
|
Sole trader asset sale |
Individual owner |
Capital Gains Tax on qualifying gains |
Different assets may receive different tax treatment |
|
Partnership asset sale |
Individual partners |
Each partner may pay Capital Gains Tax on their share |
The partnership agreement and ownership proportions matter |
|
Limited-company share sale |
Individual shareholders |
Capital Gains Tax on the gain from selling shares |
Business Asset Disposal Relief may apply if conditions are met |
|
Limited-company asset sale |
The company |
Corporation Tax on taxable profits and gains |
Shareholders may face further tax when extracting proceeds |
|
Corporate shareholder selling a subsidiary |
Parent or holding company |
Corporation Tax unless an exemption applies |
Substantial Shareholding Exemption may apply in qualifying cases |
|
Sale of selected assets |
Individual or company |
Depends on the asset and seller |
Property, goodwill, stock and equipment may be taxed differently |
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.
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:
The commercial and legal implications should be considered alongside the tax position.
|
Issue |
Share sale |
Asset sale |
|
What the buyer acquires |
Ownership of the company |
Selected assets and operations |
|
Seller |
Existing shareholder or shareholders |
The company, sole trader or partnership |
|
Main seller tax |
Often Capital Gains Tax for individuals |
CGT for sole traders and partners, or Corporation Tax for companies |
|
Historic liabilities |
Usually remain within the acquired company |
Buyer may be able to choose which liabilities it assumes |
|
Contracts |
Often remain with the same legal entity, subject to change-of-control terms |
May need to be assigned or transferred |
|
Employees |
Remain employed by the company in a share sale |
TUPE may apply in an asset or business transfer |
|
Seller access to proceeds |
Shareholder receives sale consideration directly |
Company receives proceeds before shareholders extract them |
|
Buyer stamp tax |
The buyer usually pays Stamp Duty or SDRT on qualifying share purchases |
Property taxes or other transaction taxes may apply to transferred assets |
|
VAT |
Share transfers are generally treated differently from asset transfers |
TOGC treatment may apply if conditions are met |
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.
Assume an owner sells their shares for £1,500,000.
Their qualifying costs are:
The simplified gain would be:
|
Calculation |
Amount |
|
Share sale proceeds |
£1,500,000 |
|
Less original share cost |
(£10,000) |
|
Less qualifying transaction costs |
(£30,000) |
|
Indicative gain before reliefs and losses |
£1,460,000 |
The actual tax liability would depend on:
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, 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.
Depending on the circumstances, BADR may be available when an individual:
The precise conditions differ according to the type of disposal.
For a typical sale of shares in a trading company, the individual will generally need to satisfy conditions relating to:
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.
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:
|
Part of gain |
Illustrative tax treatment |
|
First £1,000,000 within available BADR lifetime limit |
18% |
|
Remaining £200,000 |
Normal CGT rate may apply |
|
Tax on BADR portion |
£180,000 |
|
Tax on excess at 24%, if the higher rate applies |
£48,000 |
|
Illustrative total |
£228,000 |
This is a simplified illustration. The actual calculation may be affected by the annual exempt amount, losses, income, previous disposals and other factors.
Business Asset Disposal Relief should be reviewed before the sale structure and timetable are fixed.
Seemingly routine events can affect eligibility, including:
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.
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.
In an asset sale, the company sells some or all of its business assets.
These might include:
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.
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:
This is why sellers sometimes describe an asset sale by a company as potentially creating two layers of tax:
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.
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:
|
Calculation |
Amount |
|
Taxable company profit or gain |
£1,000,000 |
|
Illustrative Corporation Tax at 25% |
(£250,000) |
|
Amount remaining in the company |
£750,000 |
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.
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:
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.
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:
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.
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:
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.
A buyer may pay part of the price after completion.
For example:
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:
The commercial and tax drafting must align. Describing an amount as “deferred consideration” does not determine its tax treatment by itself.
An earnout makes part of the sale price dependent on the company’s future performance.
The final amount may be based on:
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 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:
Incorrect VAT treatment can create a significant cash-flow and compliance problem, so it should be considered before the price and contract are finalised.
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:
Sellers should understand these buyer considerations because they can influence the offered price and preferred structure.
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.
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You cannot normally eliminate tax simply by describing or arranging a transaction differently.
However, legitimate tax planning can help ensure you:
The objective should be to manage tax lawfully, not to conceal gains or create artificial arrangements.
Potential planning areas may include:
Qualifying sellers may access the 18% BADR rate on gains within their available lifetime limit.
Allowable capital losses may reduce taxable gains, subject to the rules governing how and when they are used.
Qualifying acquisition, enhancement and disposal costs may reduce the chargeable gain.
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.
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.
The timing of a disposal can affect:
Timing should be driven by genuine commercial requirements and reviewed before an unconditional sale contract is signed.
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:
Last-minute restructuring may fail to achieve the intended outcome and can introduce additional tax, legal and due-diligence risks.
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.
A company may sell its business and later be closed.
Depending on the circumstances, closure could involve:
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:
An owner should obtain tax and insolvency advice before extracting funds or applying to strike off the company.
Some transaction expenses may reduce the taxable gain or the company’s taxable profits, while others may not be deductible.
Potential expenses include:
The treatment can depend on:
Invoices and engagement letters should clearly identify who received the service and what work was performed.
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:
A single transaction can involve more than one tax.
Depending on the structure, the parties may need to consider:
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.
|
Timing |
Recommended tax work |
|
Two to five years before exit |
Review ownership, BADR eligibility, succession plans, holding structures and investment activities |
|
Twelve to twenty-four months before sale |
Assess likely share versus asset treatment, property ownership, losses and extraction plans |
|
Before marketing |
Estimate tax under different deal structures and calculate likely net proceeds |
|
Before Heads of Terms |
Review buyer structure, deferred consideration, earnout terms and BADR conditions |
|
During due diligence |
Provide tax records, identify historic risks and negotiate protections |
|
Before signing |
Confirm disposal date, consideration treatment, relief claims and payment timetable |
|
After completion |
Report the disposal, pay tax, monitor deferred payments and retain supporting records |
Ask your accountant or tax adviser:
Eligibility depends on detailed conditions. The relief should be checked rather than assumed.
The company may pay tax on the sale before shareholders face tax on receiving the remaining money.
The rate is only one part of the calculation. Base cost, losses, reliefs, transaction expenses and payment structure also matter.
A late reorganisation can affect reliefs, create anti-avoidance concerns and delay due diligence.
Tax may become payable before the seller receives all the cash.
An earnout may have complex tax treatment and may never be paid in full.
The company and shareholders are separate taxpayers. The person incurring a cost can affect whether it is deductible.
An asset sale may involve VAT or property-related taxes in addition to Corporation Tax or CGT.
Missing share-acquisition or reorganisation records can make it harder to establish base cost and defend the tax calculation.
By then, the buyer may expect a particular structure and resist changes.
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:
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