Selling a business

Capital gains tax is the tax an individual pays on the profit from selling shares in their company. The main rates are 18% and 24% from 30 October 2024. If you qualify for Business Asset Disposal Relief, the rate is 18% on up to £1m of lifetime gains. The rate you pay depends on your other income and whether any relief applies.

The gain is broadly the sale proceeds less what you originally paid for the shares, with a deduction for allowable costs such as professional fees on the sale. If you were given the shares or inherited them, a different starting value may apply. The proceeds can include deferred payments and the value of any earn-out, not just the cash paid at completion.

In an asset sale, your company sells the business and pays corporation tax on any gains. You then pay tax again when you take the money out of the company, as a dividend or on a liquidation. In a share sale, you sell the company itself and are taxed once on your gain. This is why most sellers prefer a share sale, while buyers often prefer to buy assets.

Tax runs through the whole process. It starts with planning and checking reliefs before you go to market, then agreeing the structure in the heads of terms, preparing for the buyer's due diligence, and negotiating the tax terms of the sale agreement. After completion, you report the gain, claim reliefs and pay the tax, and deal with any deferred payments as they arrive.

Ideally at least two years before a sale. Business Asset Disposal Relief requires you to meet its conditions for the two years before you sell, and other planning, such as separating property or inserting a holding company, takes time to put in place. Starting early gives you more options. Advice is still worth taking once a buyer is involved, but some routes may already be closed.

Often yes, even if some of the price is paid later. A fixed deferred payment is usually taxed as part of your gain at completion. A cash earn-out of unknown amount is usually valued and taxed at completion, with further tax when payments arrive. If you are paid in the buyer's shares, a share-for-share rollover usually defers the gain on that part until you sell those shares.

Yes, but the route matters. You can sell a division as an asset sale, move part of the business into a separate company before selling it, or split the group through a demerger. Each route has a different tax result for the company and its shareholders, and some need HMRC clearance. The right choice depends on what the buyer wants and what you plan to keep.

Not necessarily. Each shareholder is taxed on their own gain, based on what they paid for their shares, whether they qualify for Business Asset Disposal Relief, how much of their £1m lifetime limit is left, and where they are resident. Shareholders who are companies may be able to use the Substantial Shareholding Exemption. It is worth checking each shareholder's position before the deal is agreed.

Gather your company's tax returns, computations and correspondence with HMRC, VAT and payroll records, details of share issues and option schemes, and any past clearances or tax claims. Buyers will ask for these in due diligence. Having them organised and checked before you go to market shortens the process and reduces the chance of issues being used to negotiate the price down.

We advise owners on the UK tax side of selling companies worth £1m to £50m, from early planning to completion. Work is led by a senior adviser, with a Chartered Tax Adviser and a Big 4-trained team. You can book a call, email taxadvisory@aswatax.co.uk or call or WhatsApp +44 7537 143695, and we reply within one working day.