In short: When you sell a business in the UK, the tax you pay depends mainly on who is selling and what is sold. If you sell your shares in a limited company, you usually pay Capital Gains Tax on your gain, and Business Asset Disposal Relief may reduce it. If the company sells its business and assets instead, the company pays Corporation Tax first and you face a second charge when you take the money out. Deferred payments, earn outs, payment in shares and your inheritance tax position all affect the final bill, and most of the planning that reduces it has to happen well before a buyer appears.
For most owners, the sale of their company is the largest single transaction of their lives, and the tax on it is often the largest bill they will ever pay. This guide gives an overview of the taxes involved for owners of UK limited companies and points to our more detailed articles where a topic needs its own space. It sits within our complete guide to business exit planning. For current tax rates and allowances, which change regularly, see GOV.UK's Capital Gains Tax rates page.
The starting point is who is making the sale. That depends on whether the buyer is acquiring your shares or the company's business and assets.
| How the business is sold | Who pays tax on the sale | Main tax involved |
|---|---|---|
| You sell your shares in the company | You, as a shareholder | Capital Gains Tax |
| The company sells its business and assets | The company first, then you when the proceeds are extracted | Corporation Tax, followed by Income Tax or Capital Gains Tax depending on how the money is taken out |
| A sole trader or partnership sells the business | You, as the owner or partner | Capital Gains Tax |
Other taxes can apply alongside these. VAT and stamp taxes depend on the structure of the deal, and the buyer will want to understand the company's own tax history in detail. Our guide to asset sale vs share sale explains how the structure changes each of these.
Capital Gains Tax is charged on your gain, not on the price you receive. The gain is broadly the sale proceeds less what you paid for the shares and certain allowable costs, such as the professional fees incurred on the sale. For founders who subscribed for their shares at a nominal value, almost all of the proceeds can be gain.
The original cost is not always straightforward. Shares that were gifted, inherited, issued under an incentive scheme or acquired in stages over many years each carry their own rules, and getting the base cost wrong affects the whole calculation. Consider a Gateshead marketing agency where one director subscribed at incorporation and another received shares from a parent years later. They may sell on identical terms and still face quite different tax bills.
The rate you pay depends on your other income in the year of the sale and on whether any relief applies. Rates have changed several times in recent years, which is one reason it pays to check the current position close to the point of sale rather than relying on a figure you heard a few years ago.
Business Asset Disposal Relief, previously known as Entrepreneurs' Relief, can reduce the rate of Capital Gains Tax on qualifying gains, up to a lifetime limit. It is not automatic. It has to be claimed, and the conditions relating to your shareholding, your role and the company's trading status generally have to be met throughout a qualifying period before the sale.
The relief is less generous than it once was, but it is still worth protecting, and it is easy to lose through ordinary decisions taken without checking. Our guide to Business Asset Disposal Relief covers the conditions and the most common reasons claims fail.
If you would like to know where your own relief position stands before a buyer asks, our tax advisory team can review it alongside the rest of your exit plans.
In a share sale, the gain arises once, in your hands. In an asset sale, the company is the seller, so it pays Corporation Tax on its gains and profits from the sale, and the proceeds are then still inside the company. Taking them out creates a second tax event, whether that happens through dividends or by closing the company, and anti avoidance rules can affect how that second charge is treated.
That is why sellers usually prefer to sell shares and why buyers, who may gain tax advantages from buying assets, sometimes push the other way. The difference in what you keep can be considerable, so offers framed in different ways should always be compared after tax. Our article on the differences between selling shares and selling assets covers this in more depth.
Many sales are not paid entirely in cash on the day of completion. Part of the price may be deferred to a later date, or depend on how the business performs afterwards through an earn out.
The tax does not always wait for the money. Depending on how the arrangement is structured, tax can fall due on amounts you have not yet received, and in some cases on the estimated value of payments that may never be made. Fixed deferred amounts and performance linked amounts are treated differently, and the wording of the sale agreement decides which treatment applies. Owners who agree the commercial terms first and look at the tax afterwards can find themselves paying tax well before the cash arrives.
Some buyers, particularly larger companies and investor backed groups, offer part of the price in their own shares or in loan notes rather than cash. Tax on that part of the price can often be deferred until the new shares or notes are themselves sold or repaid.
Deferral is not always the better outcome, though. It can change whether relief is available and at what point, and it leaves part of your proceeds dependent on the buyer's future. In some cases a choice has to be made about how the gain is treated, and that choice is difficult to reverse once the deal has completed.
This is the part of a sale owners most often overlook. While you own shares in a trading company, they may qualify for relief from inheritance tax. Once you sell, the cash you receive generally does not, so a successful sale can increase the value of your estate that is exposed to inheritance tax. The rules on that relief have also changed recently, which makes it more important to look at your own position.
Planning for this sits partly with your accountant and partly with a regulated financial planner, and it works best when it starts before completion rather than after the money has landed.
Yes. A qualifying sale to an employee ownership trust can be free of Capital Gains Tax for the seller, subject to conditions that must be met at the time of sale and maintained afterwards. Passing shares to family members is treated differently again, because a gift to a connected person is generally treated for tax as if the shares were sold at market value, although reliefs may defer the gain. Management buyouts and trade sales usually follow the share sale principles above.
Each route has its own conditions and its own traps, which is one reason the choice of route and the tax planning need to be considered together rather than one after the other.
Earlier than most owners expect. Reliefs look back over a period of ownership, restructures need time to settle, and the way the company holds property, cash and shares all affect the outcome. Once heads of terms are signed, the structure is largely fixed and many options have closed.
A buyer's advisers will also examine the company's own tax affairs during due diligence, and any issue they find tends to be dealt with through the price or an indemnity rather than at your convenience. If you are still shaping your plans, our guide on how to create a business exit strategy is a useful place to start, and the Exit Readiness Scorecard includes structure among the areas it assesses.
We help owners understand what a sale would actually leave them with after tax, well before a buyer is involved. That includes confirming the base cost of your shares, reviewing whether reliefs are available and what could put them at risk, looking at how the company holds cash and property, and modelling the outcome of different structures and payment terms.
When a sale is under way, we work through the tax on the proposed terms, including any deferred, earn out or share based consideration, and work alongside your solicitor and financial planner. Our business valuation work gives you a defensible figure to plan around, and our exit planning service covers the wider preparation.
For the wider picture, read our business exit planning guide, or speak to our team about the tax on your own sale.
It depends on who is selling. If you sell your shares, you pay Capital Gains Tax personally on your gain. If your company sells its business and assets, the company pays Corporation Tax on its gains and profits, and a further tax charge usually arises when the proceeds are taken out of the company.
It is charged on the gain, not the price. The gain is broadly the proceeds of sale less what you originally paid for the shares and certain allowable costs, such as professional fees on the sale. Working out the original cost can be more complicated where shares were gifted, inherited or issued in different ways over time.
For most share sales, the gain is reported through Self Assessment and the tax is normally paid after the end of the tax year in which the sale completes. Different timing can apply in some circumstances, and deferred or earn out payments can create tax before the money is received, so it is worth planning cash for the bill in advance.
Not always. Depending on how the earn out is structured, part of the tax may be due at completion, based on the value of the right to future payments, rather than when the money actually arrives. Fixed deferred payments can also be taxed upfront. The drafting of the sale agreement affects which treatment applies.
Often, yes. The structure of the sale, the timing, the reliefs available and how the company is set up beforehand can all change the tax payable. Most of these depend on conditions that must be met over a period before the sale, so the earlier the planning starts, the more options remain open.
It can. Shares in a trading company may qualify for relief from inheritance tax, but the cash you receive when you sell generally does not. A sale can therefore increase the value of your estate that is exposed to inheritance tax, which is worth considering with your advisers before completion rather than after.