The Essential Guide to Tax Implications of Selling a Business in the UK

Selling your business is one of the most significant milestones in any business owner’s journey, but it’s also one of the most complex from a tax perspective. Understanding the tax implications of selling a business in the UK is vital to ensure that you retain as much of your hard-earned value as possible.

At Entrepreneurs Hub, we’ve guided hundreds of business owners through successful exits – we specialise in helping business owners like you prepare for a sale, this includes collaborating with trusted tax experts to minimise your tax liabilities and structure your deal effectively so as to achieve the best possible outcome.

This article has been co-authored by Entrepreneurs Hub and one of our trusted partners Shaw Gibbs. If you’re planning to sell in the next 1–3 years, this article will help you understand what to expect and how to prepare confidently with your professional advisors.

Key Taxes Involved When Selling a Business

Capital Gains Tax Overview

When you sell your business, the profit you make – the difference between what you paid for it and the final sale price – is usually subject to Capital Gains Tax (CGT).

In the UK, CGT applies when you sell most assets, including business assets and shares, whether a partial shareholding or the entire shareholding in a company. The CGT rate can vary depending on your income tax band and whether you qualify for specific reliefs. For most business owners, this is where early planning with your tax advisor can make a significant difference.

For example, if your sale qualifies for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief), you could pay just 14% CGT instead of the standard 18-24% depending on tax bracket. That can add up to a substantial saving – but it requires careful preparation and confirmation from your tax professional that qualifying criteria are met.

Potential VAT Implications

VAT isn’t always front of mind during a sale, but it can create complications and can be a significant cost without proper planning. Whether VAT applies depends on how your business is structured and what’s included in the sale.

For instance, a Transfer of a Going Concern (TOGC) may be exempt from VAT, provided certain conditions are met. Structuring your sale correctly can therefore save both parties considerable time and money, while maintaining deal efficiency.

The Role of Tax Relief for Entrepreneurs

Can I Sell My Business Without Paying CGT?

It may be somewhat surprising to hear, but yes, there is a way to pay zero Capital Gains Tax on the sale of a company. This involves selling the business to an Employee Ownership Trust (or EOT). It has, unsurprisingly, become a very popular way to exit – but a note of caution. EOT does not suit everyone or every situation and you must be careful to take good advice before committing to this route. For more information, please see our EOT pages.

What is Business Asset Disposal Relief (formerly known as Entrepreneurs Relief)?

Business Asset Disposal Relief (BADR) allows qualifying business owners to pay a reduced 14% CGT rate up to a maximum of £1 million of lifetime relief per individual. Note: BADR is due to change in April 2026 to a rate of 18%.

To qualify, you must typically:

• Be a sole trader, partner, or shareholder.
• Have owned the business/shareholding for at least two years.
• As a shareholder you must hold 5% or more of shares and voting rights during that two-year period and you must also be an employee or director.

BADR is one of the most valuable tools for business owners planning their exit. However, it’s not automatic, so you need to plan ahead to ensure you meet the qualifying criteria. These rules are subject to change, and eligibility depends on personal circumstances, so always confirm details with your tax advisor before relying on reliefs when structuring your sale. It is never too early to start planning, particularly because of the two-year ownership requirement.

As tax rules evolve regularly, always seek up-to-date confirmation before proceeding.

How it Affects the Sale of a Business

If you qualify for BADR, your overall tax bill could be significantly reduced. For example, if you sell your business for £3 million, and £1 million qualifies for BADR (current rate 14%), the remaining £2 million would still be taxed at the standard CGT rate (generally 24%).

A well-prepared M&A process, aligned with your qualified, professional tax planning, can help you make the most of available reliefs and avoid unpleasant surprises later in the sale journey, to maximise your post-tax proceeds.

Selling a Limited Company: Important Tax Aspects

Distinctions Between Share Sales and Asset Sales

When selling a limited company, there are two main routes: a share sale or an asset sale.

• Share Sale – where the buyer acquires the shares and takes over the business in full, including its liabilities.
• Asset Sale – where only specific assets (such as equipment, property, or goodwill) are sold.

Each option carries different tax consequences for both parties. From a seller’s perspective, a share sale is often more tax-efficient. Your advisory team will confirm what’s best for your individual situation.

Tax Treatments for Both Sale Types

• Share Sale: Usually subject to CGT, and potentially eligible for Business Asset Disposal Relief.
• If the company being sold is a subsidiary owned by a group, in certain circumstances it is possible this could be a tax-free disposal.
• Asset Sale: May involve Corporation Tax within the company, followed by potential income tax when proceeds are distributed to shareholders.

The right structure depends on your personal tax position, the company’s setup, and the buyer’s preferences. This is why tax structuring advice is essential. Entrepreneurs Hub advises on the most commercially effective deal structure while working with advisors like Shaw Gibbs to ensure it complements your tax position and results in the most tax-efficient outcome.

Business Succession and Tax Consequences

Planning for Business Succession

If your goal is to hand over your business to family members, co-directors, or a management team, tax considerations like Capital Gains Tax and Inheritance Tax (IHT) become key.

Succession planning ideally starts three to five years before your intended transition. Working with both M&A and tax professionals helps ensure that your exit strategy aligns with your long-term goals and the right reliefs are explored.

Tax Strategies to Minimise Liability

Tax strategies for succession might include:

• Gradual share transfers to family members
• Use of corporate structure to own shareholdings for family succession planning
• Setting up trusts for long-term control, asset protection and IHT planning
• Using holdover relief to defer gains
• Balancing remuneration and pension planning
• It is possible to undertake some pre-Budget tax planning

Every situation is unique, but the principle remains the same – plan early, act strategically, and work with professionals who understand both the financial and emotional sides of letting go.

We can help you coordinate these discussions and ensure your succession plan supports both your financial security and business continuity, with detailed input from your tax and legal teams.

Practical Tax Advice

Engaging with Tax Professionals

Engaging early with an experienced M&A advisor, accountant/tax specialist, and solicitor is critical. They can advise you on how potential deal structures, timing, or ownership changes could affect your tax exposure.

At Entrepreneurs Hub, we work alongside these professionals, providing strategic and commercial insight to complement their technical expertise. Together, this joined-up approach ensures your business is ready for sale and your tax position is properly managed.

Entrepreneurs Hub work closely with Shaw Gibbs, who provide tax advice to shareholders and businesses on transactions.  Tim Smith, Tax Advisory Partner at Shaw Gibbs, says:

“It is fundamental that your professional advisors work closely together to ensure you receive co-ordinated advice, which will help you minimise risk and maximise your post-tax sale proceeds. It is never too early to start planning.

“Entrepreneurs Hub and Shaw Gibbs have worked closely together to advise on numerous successful transactions.”

Maintaining Compliance Throughout the Sale Process

A sale involves extensive due diligence, legal documentation, and financial reporting. Staying compliant, particularly with HMRC requirements prevents last-minute delays or post-sale disputes.

Your advisers will help ensure that every stage of the sale process – from valuation through to completion – aligns with both legal and tax obligations.

Final Thoughts: Prepare Early – Seek Expert Advice – Maximise Your Outcome

Understanding the tax implications of selling a business in the UK is an essential part of successful exit planning, but remember, tax advice should always come from qualified professionals.

At Entrepreneurs Hub, our focus is on helping you prepare for sale, optimise your exit strategy, and coordinate your advisors so you achieve the best overall outcome – financially and personally.

If you’re considering selling your business in the next few years, now is the time to start planning.

Download our free guide: SELL – The 30-Minute Guide to Preparing Your Business for Sale Or  contact us to arrange a confidential no-obligation conversation with one of our experienced directors to understand your options and start building your ideal exit strategy.