Glossary
M&A Tax Glossary
Plain-English definitions of the tax and deal terms you'll meet when buying or selling a UK business, from earn-outs and BADR to tax covenants.
130 terms shown
A
- Annual exempt amount
- The annual exempt amount is the slice of capital gains each individual can make tax-free in a tax year, currently £3,000. On a business sale it is small compared with the gain, but each shareholder, including a spouse who owns shares, has their own allowance.Read more →
- Asset sale
- An asset sale is where a company sells its business and assets, such as goodwill, property and contracts, rather than the shareholders selling their shares. Buyers often prefer it because historic liabilities stay behind, but sellers can face two layers of tax when the proceeds are then taken out of the company.Read more →
B
- Base cost
- Base cost is the amount you are treated as having paid for an asset, which is deducted from the sale proceeds to work out a capital gain. For founders it is often just the small amount paid for shares at incorporation, so most of the sale price is taxable gain.Read more →
- Basket
- A basket is a minimum total value that warranty claims must reach before the buyer can claim anything under the sale agreement. It may be a tipping basket, where the whole amount becomes claimable once the threshold is passed, or a deductible basket, where only the excess can be claimed.Read more →
- BidCo
- BidCo is the company a buyer, often a private equity fund, sets up to acquire the shares of the target business. It usually takes on the acquisition debt and sits beneath TopCo, and its design affects interest deductions, seller rollover and future exit planning.Read more →
- BIMBO (buy-in management buy-out)
- A BIMBO is a deal where existing managers team up with incoming outside managers to buy a business, combining a management buy-out and a management buy-in. The tax issues mirror both: how the acquisition company is funded, how management equity is taxed and whether sellers keep their reliefs.Read more →
- Bona fide commercial reasons
- Bona fide commercial reasons is the test, in several anti-avoidance rules, that a transaction must be carried out for genuine commercial reasons and not mainly to avoid tax. HMRC clearance applications for share exchanges, demergers and reorganisations need to explain those commercial reasons clearly and fully.Read more →
- Business Asset Disposal Relief (BADR)
- Business Asset Disposal Relief is a capital gains tax relief that taxes qualifying gains on selling a business at a reduced rate, 18% for disposals from 6 April 2026. It covers the first £1m of qualifying gains per person over a lifetime, saving up to £60,000 compared with the 24% rate.Read more →
- Business Relief (Business Property Relief)
- Business Relief is an inheritance tax relief that reduces the taxable value of qualifying business assets, including shares in unlisted trading companies. From 6 April 2026 it gives 100% relief on the first £2.5m of combined business and agricultural property per person and 50% above that, but it is usually lost once shares are sold for cash.Read more →
C
- Cap
- A cap is the maximum total amount a seller can be required to pay under the warranties and indemnities in a sale agreement. Tax claims are sometimes given a separate or higher cap, and sellers often negotiate a cap linked to the price they actually receive.Read more →
- Capital gain
- A capital gain is the profit made when you sell or dispose of an asset, broadly the proceeds less the base cost and allowable costs. Individuals selling company shares pay capital gains tax on it, while companies pay corporation tax on their gains instead.Read more →
- Capital gains tax (CGT)
- Capital gains tax is the tax individuals and trustees pay on gains from selling assets such as company shares. The main rates are 18% within the basic rate band and 24% above it, with a lower effective rate available through reliefs such as Business Asset Disposal Relief.Read more →
- Capital reduction
- A capital reduction is a company law process that cancels or reduces a company's share capital, often to create distributable reserves or return value to shareholders. In reorganisations it is used to carry out demergers and partitions without putting a company into liquidation.Read more →
- Capital reduction demerger
- A capital reduction demerger splits a company or group by inserting a new holding company and then reducing its capital to transfer a business to a separate company owned by the shareholders. Where the reliefs apply it can be done without capital gains tax or income tax for shareholders, and HMRC clearance is usually obtained first.Read more →
- Cash-free, debt-free
- Cash-free, debt-free is the usual basis for pricing a business, where the buyer values it as if it had no cash and no debt, then adjusts the price for the actual cash and debt at completion. Tax liabilities owed at completion are often treated as debt, which reduces the price.Read more →
- Close company
- A close company is broadly a UK company controlled by a small number of shareholders or by its directors, which covers most owner-managed businesses. Close company status brings extra rules, such as tax charges on loans to shareholders, that buyers check during tax due diligence.Read more →
- Completion
- Completion is the point at which a deal closes: ownership of the shares or assets passes to the buyer and the price is paid. For capital gains tax, the disposal date is usually the earlier date of an unconditional contract rather than completion, which matters for tax year and residence planning.Read more →
- Completion accounts
- Completion accounts are accounts drawn up after completion showing the target's actual cash, debt and working capital at the completion date, with the price adjusted up or down to match. Corporation tax and other tax creditors at completion usually feed into the adjustment.Read more →
- Conditional contract
- A conditional contract is a sale agreement that only becomes binding once specified conditions are met, such as regulatory approval or shareholder consent. For capital gains tax the disposal date is usually when the contract becomes unconditional, which can change the tax year and the rates that apply.Read more →
- Conduct of claims
- Conduct of claims clauses decide who controls an HMRC enquiry or tax dispute about pre-completion periods after the sale. Sellers want a say because they may ultimately have to pay, while buyers want to protect the company's ongoing relationship with HMRC.Read more →
- Connected persons
- Connected persons are people and companies treated as linked for tax purposes, such as close relatives, business partners and companies they control. Transactions between connected persons are often treated as taking place at market value, and connection also affects reliefs such as Employee Ownership Trust relief.Read more →
- Consideration
- Consideration is everything the buyer gives for the shares or assets, whether cash, shares, loan notes or future payments such as an earn-out. The form of consideration decides when and how sellers are taxed, so it is one of the main tax points on any sale.Read more →
- Corporate interest restriction
- The corporate interest restriction is a set of rules that can limit the corporation tax deduction a group gets for interest and other financing costs. It mainly affects larger, debt-funded acquisition structures, so private equity buyers model it when deciding how much debt BidCo carries.Read more →
- Corporation tax
- Corporation tax is the tax UK companies pay on their profits and chargeable gains. On a deal it matters for asset sales, for gains made by corporate sellers where the Substantial Shareholding Exemption does not apply, and for historic liabilities a buyer inherits with the company.Read more →
D
- Data room
- A data room is a secure online folder where the seller shares documents with a buyer and its advisers during due diligence. A well-organised tax section, with returns, computations, HMRC correspondence and payroll records, speeds up the deal and reduces the number of tax questions.Read more →
- Date of disposal
- The date of disposal is the date a sale counts as happening for capital gains tax, which is usually the date of an unconditional contract rather than completion. It decides which tax year, rates and residence position apply to the gain, so signing dates need planning.Read more →
- De minimis
- A de minimis threshold is the minimum size an individual warranty claim must reach before the buyer can bring it, so that trivial claims are excluded. Claims below it are ignored and usually do not count towards the basket, though tax covenant claims are sometimes carved out.Read more →
- Deferred consideration
- Deferred consideration is part of the price paid after completion, either a fixed sum or an amount that depends on future events. A fixed deferred amount is generally taxed at the time of the sale even though the cash arrives later, which can leave sellers paying tax before they are paid.Read more →
- Degrouping charge
- A degrouping charge is a tax charge that can arise when a company leaves a group while holding an asset it received tax-free from another group company within a set period beforehand. On a share sale by a corporate seller the gain is often added to the sale proceeds, where the Substantial Shareholding Exemption may then cover it.Read more →
- Demerger
- A demerger separates one or more businesses in a company or group so that they end up owned by the shareholders in separate structures. It is often used before a sale to remove property or a business the buyer does not want, and usually needs HMRC clearances.Read more →
- Direct demerger
- A direct demerger is where a company distributes the shares of a subsidiary straight to its own shareholders. Where the statutory conditions are met it is an exempt distribution, so shareholders pay no income tax, and clearance is available under s1091 CTA 2010.Read more →
- Disclosure letter
- The disclosure letter is the seller's document setting out exceptions to the warranties in the sale agreement, such as a known HMRC enquiry. Matters fairly disclosed generally cannot later found a warranty claim, though disclosure does not usually limit the tax covenant.Read more →
- Distribution
- A distribution is a payment of value by a company to its shareholders because they are shareholders, most commonly a dividend. Distributions are taxed as income, which is why anti-avoidance rules stop company profits being turned into lower-taxed capital without a genuine commercial reason.Read more →
- Dividend
- A dividend is a payment of a company's profits to its shareholders, taxed on individuals at income tax dividend rates. Before a sale, owners sometimes consider a pre-sale dividend to extract cash, but the result should be compared with leaving the cash in the company and in the price.Read more →
- Domicile
- Domicile is the legal concept of a person's permanent home, which historically decided exposure to UK inheritance tax. Since April 2025 inheritance tax has instead been based on long-term UK residence, though domicile can still matter under transitional rules and other countries' laws.Read more →
- Due diligence
- Due diligence is the buyer's investigation of a target business before committing to a deal, covering financial, legal, commercial and tax matters. Its findings can lead to price reductions, specific indemnities, retentions or changes to the deal structure.Read more →
E
- Earn-out
- An earn-out is part of the sale price that depends on the business hitting future targets, such as profit or revenue, after completion. A cash earn-out of unknown amount is usually valued and taxed at completion, and earn-outs tied to continued employment can be taxed as employment income.Read more →
- Earn-out right
- An earn-out right is the seller's right to receive future earn-out payments, which UK tax law treats as a separate asset valued at completion. Later payments are compared with that value, producing a further gain or a loss when the earn-out is paid or comes to an end.Read more →
- Employee Ownership Trust (EOT)
- An Employee Ownership Trust is a trust that holds a controlling interest in a company for the long-term benefit of all its employees. Since 26 November 2025, half of the gain on a qualifying sale of a controlling interest to an EOT is relieved and the other half is taxed at normal capital gains tax rates. The company can then pay qualifying employees tax-free bonuses of up to £3,600 a year.Read more →
- Employee Ownership Trust relief (EOT relief)
- EOT relief is the capital gains tax relief for owners who sell a controlling interest in their trading company to a qualifying Employee Ownership Trust. For sales on or after 26 November 2025 it covers half of the gain: the other half is taxed at the time of sale at normal rates, and Business Asset Disposal Relief can't be claimed on the same sale. Since 30 October 2024 the trustees must be UK resident, former owners cannot control the trust, trustees must not knowingly overpay and the clawback period is longer.Read more →
- Employment taxes
- Employment taxes are the PAYE income tax and National Insurance due on employees' pay and benefits. They are one of the most common sources of due diligence findings, such as unreported benefits, contractor status issues or share awards not reported to HMRC.Read more →
- Enterprise Management Incentives (EMI)
- Enterprise Management Incentives are tax-advantaged share options that qualifying smaller, independent trading companies can grant to employees. Gains are usually taxed as capital rather than income, and EMI shares are exempt from the 5% shareholding test for Business Asset Disposal Relief, which makes them valuable on an exit.Read more →
- Enterprise value
- Enterprise value is the headline value of a business on a cash-free, debt-free basis, before adjusting for its actual cash, debt and working capital. The price shareholders receive, the equity value, is worked out from it and is what drives their tax computation.Read more →
- Entrepreneurs' Relief
- Entrepreneurs' Relief is the former name of Business Asset Disposal Relief. Older documents and advice still use the old name, but the rate, lifetime limit and conditions that apply now are those of Business Asset Disposal Relief, including the 18% rate for disposals from 6 April 2026.Read more →
- Equity value
- Equity value is the price actually paid for the shares, broadly enterprise value plus cash less debt and other agreed adjustments. It is the figure used to calculate sellers' capital gains, so items such as tax liabilities treated as debt reduce both the price and the gain.Read more →
- Escrow
- An escrow is an arrangement where part of the sale price is held by an independent third party, such as a solicitor, after completion as security for warranty or indemnity claims. It is released to the seller later if no claims arise, and how it is taxed depends on the terms.Read more →
- Excepted assets
- Excepted assets are assets held by a business that are not used for its trade, such as surplus cash or investments, and they are excluded from Business Relief for inheritance tax. Large cash balances or investment property can therefore reduce the relief available on a shareholding.Read more →
F
- Family Investment Company
- A Family Investment Company is a private company, usually owned by family members, used to hold and invest wealth such as business sale proceeds over the long term. It can give control and flexibility when passing value to the next generation, but the tax position needs modelling before it is set up.Read more →
- Family office
- A family office is an organisation that manages the investments of a wealthy family, and many now buy private companies directly. Family office buyers often take a longer-term view than private equity and may offer flexible structures, but the same tax due diligence and warranty points apply.Read more →
G
- General Anti-Abuse Rule (GAAR)
- The General Anti-Abuse Rule is a UK rule that lets HMRC counteract abusive tax arrangements, even where they appear to meet the letter of the law. It sits alongside targeted anti-avoidance rules, so artificial planning around a sale carries real risk.Read more →
- Goodwill
- Goodwill is the value of a business beyond its identifiable assets, such as its reputation, customer relationships and workforce. On an asset sale it is often the largest asset sold, and whether the buyer gets corporation tax relief for purchased goodwill depends on the circumstances.Read more →
- Group relief
- Group relief lets companies in a UK group with a high level of common ownership surrender losses to each other to reduce corporation tax. A sale, or arrangements for one, can break the group relationship, so buyers check whether past or future group relief claims are affected.Read more →
H
- Heads of terms
- Heads of terms are a short, mostly non-binding document recording the main commercial terms of a deal, such as price, structure and timetable, before the full contracts are drafted. They are the best stage to agree the tax structure, because it is much harder to change later.Read more →
- Hive-down
- A hive-down is the transfer of a business or assets from a company into a new subsidiary, often so the subsidiary's shares can then be sold. Within a group the transfer can usually be made without immediate tax charges, but degrouping and stamp duty land tax clawback rules must be checked.Read more →
- Hive-up
- A hive-up is the transfer of a subsidiary's trade and assets up to its parent company, often to simplify a group after an acquisition. Group rules can usually let assets move without an immediate tax charge, but losses, VAT, employees and contracts all need to be considered.Read more →
- HMRC clearance
- An HMRC clearance is written confirmation from HMRC, given in advance, that a proposed transaction will not be caught by specific anti-avoidance rules. HMRC must respond to the main statutory clearances within 30 days of a complete application, so they are built into most deal timetables.Read more →
- HMRC enquiry
- An HMRC enquiry is a formal check by HMRC into a tax return or tax position. Open or expected enquiries must be disclosed to a buyer, and they are often covered by a specific indemnity and by the conduct of claims clauses in the sale agreement.Read more →
- Holding company
- A holding company is a company that owns shares in one or more other companies, its subsidiaries. Inserting one before a sale can let a corporate seller use the Substantial Shareholding Exemption or help separate assets, but timing, clearances and anti-avoidance rules matter.Read more →
- Holdover relief (gift relief)
- Holdover relief, also called gift relief, lets the capital gain on a gift of business assets, including shares in an unlisted trading company, be postponed by passing it to the recipient. It can be used to pass shares to family members, but it is restricted for non-UK resident recipients and needs planning well before a sale.Read more →
I
- Indirect demerger
- An indirect demerger is where a company transfers a business or subsidiary to a new company, which then issues its own shares to the original company's shareholders. If the statutory conditions are met it can be tax-free for shareholders, with clearance available under s1091 CTA 2010.Read more →
- Inheritance tax (IHT)
- Inheritance tax is the tax charged on a person's estate on death and on some lifetime gifts, at a standard rate of 40% above the available allowances. Selling a business for cash usually turns relievable shares into fully taxable cash, so many owners plan for inheritance tax alongside the sale.Read more →
- Institutional strip
- The institutional strip is the bundle of loan notes or preference shares and ordinary shares that a private equity fund invests in an acquisition structure. Its terms rank ahead of management equity and affect how much value ultimately flows to rolled-over sellers and managers on exit.Read more →
- Introducer
- An introducer is a professional, such as an accountant, corporate finance adviser, lawyer or wealth manager, who refers a client to a specialist adviser. With Transaction Tax Partners, introducers keep their client relationship and we advise only on the transaction tax side.Read more →
- Investors' Relief
- Investors' Relief is a capital gains tax relief for outside investors who subscribe for newly issued ordinary shares in an unlisted trading company and hold them for at least three years. It gives a reduced rate on qualifying gains, with its own £1m lifetime limit separate from Business Asset Disposal Relief.Read more →
- IR35 (off-payroll working rules)
- IR35, also known as the off-payroll working rules, taxes contractors who work through their own company broadly like employees where the reality is employment. Buyers check it in due diligence, because a business that wrongly treats contractors as outside the rules can face PAYE and National Insurance liabilities.Read more →
L
- Leakage
- Leakage is value flowing out of the target to the seller or connected parties between the locked box date and completion, such as dividends, fees or bonuses. On a locked box deal the seller must repay leakage pound for pound, except for permitted leakage agreed in the contract.Read more →
- Liquidation demerger (s110 liquidation)
- A liquidation demerger is where a company is placed into members' voluntary liquidation and the liquidator transfers its businesses to new companies, which issue shares to the shareholders. It is often called a section 110 liquidation, after section 110 of the Insolvency Act 1986, and usually relies on reconstruction relief and HMRC clearance.Read more →
- Loan notes
- Loan notes are a form of IOU issued by the buyer to the seller as part of the price, repaid later, often with interest. Their tax treatment depends on whether they are qualifying corporate bonds, and they can be used to defer the seller's gain, with elections available to preserve BADR.Read more →
- Locked box
- A locked box is a pricing mechanism where the price is fixed by reference to a historic balance sheet, with no adjustment after completion. The seller promises that no value has leaked out of the company since that date, and the buyer takes the trading risk from then on.Read more →
- Long-form report
- A long-form report is a detailed tax due diligence report covering each area of tax for the target, such as corporation tax, VAT, employment taxes and transfer pricing, with findings and recommendations. It gives more background than a red-flag report and is common on larger or private equity backed deals.Read more →
- Long-term residence
- Long-term residence is the test that, since April 2025, decides whether an individual's worldwide assets are within the scope of UK inheritance tax. It looks at how many past tax years someone has been UK resident, so moving abroad does not immediately take sale proceeds outside UK inheritance tax.Read more →
M
- Management buy-in (MBI)
- A management buy-in is where an outside management team buys a business, usually with investor or bank funding, and takes over running it. Sellers face similar tax issues to a trade sale, while the incoming team needs to structure its own equity and debt tax-efficiently.Read more →
- Management buy-out (MBO)
- A management buy-out is where the existing management team buys the business from its owners, often through a new company funded by debt, investors or deferred payments to the sellers. The tax structure decides how sellers are taxed on deferred consideration and how managers' shares are treated.Read more →
- Market value
- Market value is the price an asset would fetch in a sale between willing, unconnected parties, and tax law substitutes it for the actual price in many transactions between connected persons. It matters for gifts, family transfers, Employee Ownership Trust sales and shares issued to managers.Read more →
- Members' voluntary liquidation (MVL)
- A members' voluntary liquidation is a formal process for closing a solvent company and distributing its remaining assets to shareholders. Distributions in an MVL are normally taxed as capital, which may qualify for BADR, but anti-avoidance rules can treat them as income if the owner carries on a similar trade afterwards.Read more →
N
- NewCo
- NewCo is the generic name for a newly formed company used in a transaction, such as a new holding company inserted above a business or the vehicle used by managers in a buy-out. Sellers often exchange shares or receive loan notes from NewCo, so HMRC clearances are commonly needed.Read more →
- No gain, no loss transfer
- A no gain, no loss transfer is a transfer of an asset treated as made at a price giving neither a gain nor a loss, as between spouses or civil partners living together, or between group companies. Transfers between spouses can let both use their own allowances, though each must meet the BADR conditions in their own right.Read more →
- Non-qualifying corporate bond (non-QCB)
- A non-QCB is a loan note structured so that it is not a qualifying corporate bond, meaning the seller's gain is rolled into the loan note and taxed when it is redeemed. The rates and reliefs at that later time apply, so BADR elections need to be considered at completion.Read more →
- Non-resident CGT on UK property-rich companies
- Non-UK residents can pay UK capital gains tax when they sell shares in a UK property-rich company, broadly one that gets at least 75% of its value from UK land, if they hold 25% or more. This can catch overseas sellers of property-heavy businesses even after they have left the UK.Read more →
O
P
- Partition
- A partition is a demerger that splits a company or group between different shareholders, so each group of owners takes away its own business. Partitions usually rely on a liquidation or capital reduction with reconstruction relief, and need careful HMRC clearance because the anti-avoidance rules are strict.Read more →
- Post-deal integration
- Post-deal integration is the work after completion to bring an acquired business into the buyer's group, such as aligning year ends, moving trades and simplifying structures. Planning at this stage can preserve tax losses, avoid unwanted charges and reduce ongoing compliance.Read more →
- Pre-sale restructuring
- Pre-sale restructuring is reorganising a company or group before a sale, for example inserting a holding company, removing property or tidying up share classes. Done early and with clearances where needed, it can protect reliefs and make the business easier to sell, while late changes attract scrutiny.Read more →
- Pre-sale tax review
- A pre-sale tax review is a check of a company's tax affairs and its owners' reliefs before a sale process starts. It finds the issues a buyer would raise and confirms whether reliefs such as BADR or SSE are available, while there is still time to act.Read more →
- Private equity
- Private equity is investment by funds that buy stakes in private companies, aiming to grow them and sell within a few years. Private equity deals usually involve a TopCo and BidCo, rollover equity for sellers, loan notes, management incentives and detailed tax due diligence.Read more →
Q
- Qualifying corporate bond (QCB)
- A qualifying corporate bond is a sterling debt instrument, such as many loan notes, that is itself exempt from capital gains tax. When shares are exchanged for QCBs, the gain is calculated at that point and frozen, coming into charge when the loan note is redeemed, so BADR elections need to be considered at the time of the exchange.Read more →
- Quality of earnings
- A quality of earnings report is financial due diligence that analyses whether a target's reported profits are sustainable and what its underlying earnings really are. It often feeds directly into the price, and tax items such as unpaid liabilities or one-off credits can affect the adjusted figures.Read more →
R
- Ratchet
- A ratchet is a mechanism that changes management's share of the equity depending on performance, such as the return the investors achieve on exit. Because a ratchet shifts value between shareholders, its employment tax treatment needs checking when it is set up.Read more →
- Reconstruction relief
- Reconstruction relief lets businesses and shareholdings be moved into new companies under a scheme of reconstruction, such as a demerger or partition, without an immediate capital gains tax charge. It requires shareholdings to continue in broadly the same proportions and a genuine commercial purpose, and HMRC clearance is usually obtained.Read more →
- Red-flag report
- A red-flag report is a short due diligence report that highlights only the significant tax issues found, rather than describing every area in detail. It suits smaller deals and bolt-on acquisitions, and lets the buyer focus negotiations on the points that may affect price, indemnities or structure.Read more →
- Retention
- A retention is part of the price held back by the buyer after completion to cover possible warranty or indemnity claims, and released to the seller once the agreed period passes. Unlike an escrow it is held by the buyer, so the seller takes more risk of not being paid.Read more →
- Rollover (equity rollover)
- A rollover is where a seller takes part of the price as shares or loan notes in the buyer's structure instead of cash, keeping a stake in the future exit. Share-for-share exchange rules can defer the tax on the rolled amount, and elections can preserve BADR.Read more →
- Rollover relief (business asset roll-over relief)
- Rollover relief lets a business defer the gain on selling certain trading assets, such as land and buildings used in the trade, by reinvesting the proceeds in new qualifying assets. It is different from an equity rollover on a share sale and does not apply to shares.Read more →
S
- s1044 clearance
- A s1044 clearance is an application under s1044 CTA 2010 asking HMRC to confirm that a company's purchase of its own shares qualifies for capital treatment. It gives the selling shareholder certainty that the buy-back will be taxed as a capital gain rather than as an income distribution.Read more →
- s1091 clearance
- A s1091 clearance is an application under s1091 CTA 2010 asking HMRC to confirm that a demerger qualifies as an exempt distribution. It is normally requested before a direct or indirect demerger, often alongside transactions in securities and share exchange clearances.Read more →
- s138 clearance
- A s138 clearance is an application under s138 TCGA 1992 asking HMRC to confirm that a share-for-share exchange or reorganisation is for genuine commercial reasons and not mainly to avoid tax. Without it, the capital gains tax deferral on the exchange could later be denied.Read more →
- s431 election
- A s431 election is a joint election by an employee and employer to tax employment-related shares by reference to their full unrestricted market value when acquired. It usually means later growth is taxed as a capital gain rather than income, so it is standard practice for management equity.Read more →
- s701 clearance
- A s701 clearance is an application under s701 ITA 2007 asking HMRC to confirm that the transactions in securities rules will not apply to a transaction. It is commonly sought on reorganisations, buy-backs, liquidations and sales to connected companies, where proceeds could otherwise be taxed as income.Read more →
- Sale and purchase agreement (SPA)
- The sale and purchase agreement is the main legal contract for buying a company or business, setting out the price, payment terms, warranties, indemnities and limits on claims. On a share sale the tax covenant is either included in it or set out in a separate tax deed.Read more →
- SDLT group relief
- SDLT group relief exempts transfers of land between companies in the same group from Stamp Duty Land Tax. The relief can be clawed back if the company receiving the land leaves the group within a set period, which is a common trap when property is moved shortly before a sale.Read more →
- Search fund
- A search fund is a vehicle where an individual entrepreneur raises money from investors to find, buy and then run a single small or medium-sized business. To a seller it is a buyer like any other, though search fund deals often use deferred consideration, earn-outs or vendor loan notes.Read more →
- Specific indemnity
- A specific indemnity is a seller's promise to cover a particular, known risk found in due diligence, such as a possible employment tax or VAT liability. It is often used instead of a price reduction and may be backed by an escrow or retention.Read more →
- Split year treatment
- Split year treatment divides a tax year into a UK part and an overseas part when someone starts or stops being UK resident in specified circumstances. It matters for sellers leaving the UK, but the temporary non-residence rules can still bring later gains into charge if they return.Read more →
- Stamp duty
- Stamp duty is a tax paid by the buyer on transfers of shares in UK companies. On a share sale it is normally a buyer cost, and some group reorganisations and share exchanges can qualify for relief if the conditions are met.Read more →
- Stamp Duty Land Tax (SDLT)
- Stamp Duty Land Tax is a tax paid by buyers of land and buildings in England and Northern Ireland. It applies on asset purchases that include property but not on a purchase of company shares, which is one reason property-owning businesses are often sold as companies.Read more →
- Statutory residence test
- The statutory residence test is the set of rules that decides whether an individual is UK resident for a tax year, based on days spent in the UK, automatic tests and connecting ties. Residence when a sale contract becomes unconditional largely decides whether the gain is taxed in the UK.Read more →
- Sweet equity
- Sweet equity is ordinary shares offered to management in a private equity deal at a low price, giving them a large share of future growth relative to what they invest. Because the investors fund most of the deal through loan notes or preference shares, the shares need careful valuation to avoid income tax charges.Read more →
T
- Tax covenant
- A tax covenant is a seller's promise to pay the buyer, pound for pound, for tax liabilities of the company relating to the period before completion. It is usually in the sale agreement or a separate tax deed and is subject to agreed limits and claim periods, commonly 4 to 7 years.Read more →
- Tax deed
- A tax deed is a separate document containing the tax covenant, under which the seller indemnifies the buyer for pre-completion tax liabilities. It sets out exclusions, time limits for claims and who controls any dispute with HMRC.Read more →
- Tax due diligence
- Tax due diligence is the review of a target company's tax affairs by the buyer's advisers before a deal, looking for historic liabilities and risks. Findings typically lead to price reductions, specific indemnities, retentions or changes to the structure, so sellers benefit from preparing for it.Read more →
- Tax indemnity
- A tax indemnity is a promise by the seller to repay the buyer, pound for pound, for specified tax liabilities relating to the period before completion. Unlike a warranty claim, the buyer does not need to prove a loss in the value of the shares, which makes indemnities important for known tax risks.Read more →
- Tax warranties
- Tax warranties are statements of fact by the seller about the target's tax affairs, such as that returns have been filed correctly and no HMRC enquiries are open. If one proves untrue the buyer can claim for the resulting loss, subject to disclosure and agreed limits, with claim periods commonly 4 to 7 years.Read more →
- Temporary non-residence
- Temporary non-residence rules can tax gains made while abroad if someone returns to the UK after being non-resident for five years or less. Gains on assets held before leaving are then taxed in the year of return, which can catch business owners who sell shortly after moving abroad.Read more →
- TopCo
- TopCo is the top company in an acquisition structure, usually owned by the private equity fund, management and any sellers who roll over. It sits above BidCo, and its share classes and loan notes decide how value is split between investors on exit.Read more →
- Trade sale
- A trade sale is the sale of a business to another trading company, often a competitor or a larger business in the same sector. It usually means a largely cash exit for sellers, though earn-outs and deferred consideration are common, and the buyer will carry out tax due diligence.Read more →
- Trading company
- A trading company, for tax relief purposes, is a company whose activities are mainly trading, without substantial non-trading activities such as property letting or investment. Trading status is a condition of BADR, SSE and Business Relief, so surplus cash and investments are checked before a sale.Read more →
- Trading group
- A trading group is a group of companies whose activities, taken together, are mainly trading, with activities between group members ignored. A holding company of a trading group can qualify for BADR and SSE, so non-trading subsidiaries and assets in the group need reviewing before a sale.Read more →
- Transactions in securities
- The transactions in securities rules are income tax anti-avoidance rules that can tax shareholders as if they had received a dividend where a transaction turns company profits into capital. They often apply to reorganisations, liquidations and sales to connected companies, and a s701 clearance can confirm they will not apply.Read more →
- Transfer of a going concern (TOGC)
- A transfer of a going concern is an asset sale of a business that meets conditions allowing it to be made without charging VAT. The buyer generally needs to carry on the same kind of business and be VAT registered where required, so getting it right avoids an unexpected VAT cost.Read more →
- Transfer pricing
- Transfer pricing rules require transactions between related companies or businesses to be priced as if they were between independent parties. Buyers review intra-group charges, management fees and loans during due diligence, especially in international groups.Read more →
V
- Vendor due diligence
- Vendor due diligence is tax and financial due diligence commissioned by the seller before marketing a business, with the report shared with potential buyers. It brings issues to light early so they can be fixed or explained, and can speed up the deal and protect the price.Read more →
- Vendor loan note
- A vendor loan note is a loan note issued to the seller for part of the price, effectively letting the buyer pay over time. It is common in management buy-outs, private equity deals and Employee Ownership Trust sales, and its tax treatment depends on whether it is a QCB or a non-QCB.Read more →
W
- Warranty and indemnity insurance (W&I insurance)
- Warranty and indemnity insurance is a policy covering losses from breaches of warranties, and often the tax covenant, so the buyer claims against the insurer rather than the seller. It allows a cleaner exit for sellers, though known tax issues found in due diligence are usually excluded.Read more →
FAQs
Frequently asked questions
What does M&A mean?
M&A stands for mergers and acquisitions: the buying, selling and combining of businesses. In practice, for most owner-managed companies, it means selling the company to a trade buyer, private equity, the management team or an Employee Ownership Trust, or buying another business.
What is the difference between a share sale and an asset sale?
In a share sale, the buyer acquires the company itself, with all its history, and the sellers are usually taxed on a capital gain. In an asset sale, the company sells its business and assets, and the proceeds stay in the company until they're extracted, which can mean a second layer of tax.
What is a tax covenant?
A tax covenant, sometimes called a tax deed or tax indemnity, is the sellers' promise to pay the buyer for tax liabilities that relate to the period before completion. Unlike a warranty claim, the buyer usually doesn't need to prove a loss in value, so the scope and limits matter.
What is the difference between completion accounts and a locked box?
With completion accounts, the final price is adjusted after completion based on accounts drawn up to the completion date. With a locked box, the price is fixed by reference to an earlier balance sheet, and the sellers promise that no value has leaked out since.
What is a heads of terms?
Heads of terms are a short, mostly non-binding summary of the main deal terms agreed before the detailed legal documents are drafted. They often fix the structure and how the price is paid, so it's worth having the tax reviewed before they're signed.
What does BADR stand for?
BADR stands for Business Asset Disposal Relief, formerly known as Entrepreneurs' Relief. It reduces capital gains tax on qualifying business disposals to 18% for disposals from 6 April 2026, on up to £1m of lifetime gains.
What is W&I insurance?
Warranty and indemnity insurance covers losses from breaches of the warranties, and certain indemnities, in a sale agreement. It's usually bought by the buyer and can let sellers exit with less of the price held back, but it usually excludes issues already known from due diligence.
What is a share-for-share exchange?
A share-for-share exchange is where shareholders swap their shares for new shares in another company, often a new holding company or the buyer's group. Where the conditions are met, the gain is usually deferred until the new shares are sold, and HMRC clearance is commonly obtained first.
What is deferred consideration?
Deferred consideration is part of the sale price that's paid after completion, either a fixed amount in instalments or a variable amount such as an earn-out. It's often taxed at completion even though the money arrives later, so the cash flow needs planning.
Can I suggest a term for the glossary?
Yes. If there's a term you've come across on a deal that isn't here, email taxadvisory@aswatax.co.uk and we'll consider adding it. We review the glossary regularly to keep the definitions current.
Free tools
Calculators and tools
Which offer is better? Offer comparison
Compare two offers on what you keep after tax, when you get it, and how much is at risk.
Use the toolWhat will I actually keep?
From headline price to the money in your account, then the inheritance tax picture after.
Use the toolYour exit tax roadmap
Enter a target sale date and get a dated, step-by-step tax plan for your calendar.
Use the toolBADR saving calculator
See how much Business Asset Disposal Relief could save on your sale, at 2026/27 rates.
Use the toolCapital gains tax on selling shares
Work out your gain, the capital gains tax and what you keep from selling your shares.
Use the toolEarn-out tax timing calculator
See how much tax is due at completion on an earn-out you haven't received yet.
Use the toolExit readiness quiz
Ten questions, a readiness score, and the areas to fix before you sell.
Use the toolExit route comparison
Weigh price, tax, speed, continuity and your team to compare your exit options.
Use the toolSubstantial Shareholding Exemption checker
Four questions to see whether a company's share sale could be exempt from corporation tax.
Use the toolInheritance tax after a sale calculator
See how selling could increase inheritance tax as shares turn into cash.
Use the toolLeaving the UK: residence checker
Moving abroad before a sale? See whether you'd still be UK resident.
Use the tool
Talk to a specialist before you sign anything.
The earlier tax is considered, the more options you have. Book a confidential call.
Or write to taxadvisory@aswatax.co.uk
