Whether a UK business is sold by share sale or asset sale determines the tax treatment for both parties, what the buyer acquires, what liabilities transfer and how the legal process works. The choice matters — and the two sides of the deal often have opposite preferences.
Quick Answer
In a share sale, the buyer purchases the shares in the company and takes ownership of everything inside it — including all liabilities, history and obligations. In an asset sale, the buyer purchases specified assets (and selected liabilities) from the company, leaving the legal entity with the seller.
Sellers generally prefer share sales because of more favourable tax treatment. Buyers generally prefer asset sales because they can choose what to take on and avoid inheriting the company's history. The tension between these preferences is one of the most common negotiating points in UK SME transactions.
Contents
What is a share sale?
In a share sale, the buyer acquires the shares held by the existing shareholders in the company. The company itself does not change — it continues to exist with all of its assets, contracts, employees, liabilities, history and tax records intact. What changes is who owns it.
From a legal perspective, the company is the same entity it was the day before completion. Its bank accounts, leases, supplier agreements, customer contracts, employees and debts all remain within the company and transfer automatically to the new owner.
This is why share sales are simpler in some respects — there is no need to reassign every contract, transfer every asset or re-engage every employee. Everything stays where it is; only the ownership of the company changes.
What is an asset sale?
In an asset sale, the company (not the shareholders) sells specified assets to the buyer. The legal entity that owned those assets — the limited company — is not what the buyer acquires. Instead, the buyer gets a defined list of items: the trading name, goodwill, customer relationships, stock, equipment, contracts (where transferable), and possibly the lease.
The seller's company retains everything not on the agreed list — including cash, retained profit, and liabilities that are not specifically transferred. After an asset sale, the seller's company may be a shell containing cash and historical liabilities.
Asset sales require more legal work because each asset must be formally transferred. Contracts must be novated (agreed between buyer, seller and the counterparty) or assigned. Leases must be assigned with the landlord's consent. Assets on finance agreements must be dealt with separately. Employees transfer under TUPE.
Key differences at a glance
What transfers - The entire company (all assets and liabilities) - Specified assets and selected liabilities only
Who the seller is - The shareholders - The company
Liabilities - All company liabilities transfer automatically - Only specified liabilities transfer
Tax for seller - CGT (often with BADR) — typically more efficient - Corporation tax inside company, then extraction tax — typically less efficient
Tax for buyer - No deduction for purchase price against future profits (in most cases) - Can deduct cost of qualifying assets against future taxable profits
VAT - Transfer of shares is VAT exempt - TOGC may apply; if not, VAT at 20% on taxable assets
Stamp Duty - Buyer pays 0.5% stamp duty on share consideration - SDLT may apply if property transfers
Contracts - Transfer automatically within the company (but may have change of control clauses) - Must be novated or assigned — requires consent
Lease - Stays within the company (may need landlord notification) - Must be formally assigned — landlord consent usually required
Staff - Stay employed by the company — no TUPE issues - TUPE applies — staff transfer on existing terms
Due diligence - More complex — buyer inherits full history - More targeted — buyer selects what to acquire
Legal complexity - Lower in principle — but warranties/indemnities are extensive - Higher in some respects — more individual transfers needed
Tax for the seller — share sale vs asset sale
This is the most important difference for most sellers, and the reason sellers strongly prefer share sales.
Share sale — seller's tax position
In a share sale, the shareholders (the sellers) dispose of their shares and receive capital proceeds. The gain is subject to Capital Gains Tax (CGT). If the qualifying conditions are met, Business Asset Disposal Relief (BADR) reduces the CGT rate to 18% (from April 2026) on the first £1 million of lifetime qualifying gains.
For a seller receiving £500,000 in a qualifying share sale (from April 2026):
Gain (assuming nominal base cost): ~£500,000
CGT at 18% (BADR): ~£90,000
Net proceeds: ~£410,000
Asset sale — seller's tax position
In an asset sale, the company receives the proceeds — not the shareholders directly. The gain on the assets is subject to corporation tax inside the company at up to 25%.
To extract the after-tax proceeds personally, the shareholders then face further tax — either:
Dividends:Taxed at 8.75% (basic), 33.75% (higher) or 39.35% (additional) above the £500 dividend allowance
Members' voluntary liquidation (MVL):Where a licensed insolvency practitioner winds up the company, the distribution may be treated as a capital receipt and taxed as CGT — potentially qualifying for BADR. This is the most tax-efficient exit from an asset sale but requires formal liquidation.
For a seller receiving the same £500,000 through an asset sale with full extraction:
Corporation tax on gain at 25%: £125,000
Remaining in company: £375,000
MVL distribution (if CGT treatment, at 18% BADR): further ~£67,500
Net proceeds: approximately £307,500
This comparison is a simplified illustration. Actual tax outcomes depend on many factors including the base cost of assets, other income, timing and structure. You must seek independent, qualified tax advice for an accurate assessment of your specific position.
The difference in outcomes is why sellers negotiate hard for share sales, and why they may ask for a higher price if they are forced to accept an asset sale structure.
Tax for the buyer — share sale vs asset sale
Buyers have a different set of tax considerations, which is why they often prefer asset purchases.
Share sale — buyer's tax position
In a share sale, the buyer acquires shares. The purchase price for shares is not generally deductible against future taxable profits in the acquired company. The buyer cannot claim capital allowances on the purchase price because they are buying shares, not assets.
Stamp Duty of 0.5% is payable on the share consideration. On a £500,000 share purchase, stamp duty is £2,500.
Asset sale — buyer's tax position
In an asset sale, the buyer acquires specific assets — and the purchase price can be apportioned across those assets. This creates a potential tax benefit:
Qualifying plant and machinery:Eligible for capital allowances, reducing the buyer's future tax liability
Goodwill:For acquisitions of qualifying businesses after April 2019, goodwill may be eligible for Corporation Tax relief through amortisation
Trading stock:The cost transfers as an opening stock deduction
Property:The buyer gets a higher base cost for future SDLT and CGT purposes
This is why buyers from a tax perspective often prefer asset purchases — they can build a deductible cost base that reduces their corporation tax in the years following the acquisition.
Liabilities and risk — what transfers?
This is the other key reason buyers prefer asset purchases.
Share sale — all liabilities transfer
In a share sale, the buyer takes on the company's entire history. This includes:
Tax liabilities — even undisclosed or historical ones (PAYE, VAT, corporation tax)
Employment disputes and tribunal claims
Customer warranty claims
Regulatory violations
Environmental liabilities
Outstanding litigation
The buyer does not see most of these because they happened before completion. This is why buyers require extensive warranties and indemnities from sellers in share purchase agreements — to give them a contractual remedy if liabilities emerge after completion.
Sellers give warranties confirming there are no undisclosed liabilities. If a warranty proves false, the seller compensates the buyer. But warranties are only as good as the seller's ability to pay — and recovering money from a seller who has distributed all proceeds is difficult.
Asset sale — selective liability assumption
In an asset sale, the buyer takes on only what is specified in the purchase agreement. Historical tax liabilities, litigation, and obligations that are not listed remain with the seller's company.
This gives buyers much greater control over their risk exposure. The downside is that the legal process is more complex — every asset transfer, contract novation and employee transfer must be specifically documented.
Contracts, leases and third-party consents
Share sale
Because the company does not change, contracts remain with the company and do not need to be individually transferred. However, many commercial contracts includechange of control clauses— provisions allowing the counterparty to terminate if the company's ownership changes.
Key customer contracts, supplier agreements, lease agreements and financing documents should all be reviewed for change of control provisions during due diligence. If significant contracts can be terminated by the counterparty after a share sale, this is a material risk.
Asset sale
In an asset sale, every contract must be specifically transferred. This involves:
Assignment:The contract transfers from the seller to the buyer unilaterally, usually where the contract permits this
Novation:A three-party agreement between seller, buyer and the counterparty, where the original contract is cancelled and replaced with a new one between the buyer and the counterparty
Many contracts cannot be assigned without consent. Key customers, suppliers and licencing arrangements must all agree to the transfer. This can create delays and — in some cases — counterparties may use the transfer request as an opportunity to renegotiate terms.
Lease assignment
A lease in an asset sale must be formally assigned from the seller's company to the buyer, with the landlord's written consent. The landlord may:
Grant consent without conditions
Require the buyer to provide references, a rent deposit or a personal guarantee
Refuse consent (if there are legitimate grounds under the Landlord and Tenant Act 1988)
Use the opportunity to review the rent or update the terms
Lease assignment is often the most time-sensitive element of an asset purchase. Start the process early, because landlord consent can take weeks or months.
Staff and employment (TUPE)
Share sale
In a share sale, employees remain employed by the same company throughout. Their employer (the legal entity) does not change. TUPE does not apply. There is no formal obligation to consult employees about the change of ownership, though good practice — and some contractual obligations — may require it.
Asset sale
In an asset sale, where employees transfer with the business, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply. Where TUPE applies:
Employees transfer to the buyer on their existing terms and conditions
Continuity of employment is preserved
Dismissals connected to the transfer may be automatically unfair
Both seller and buyer have obligations to inform and consult employee representatives
TUPE is a complex area and whether it applies depends on the specific facts. You should seek independent legal advice on your TUPE obligations before completion. Do not assume TUPE does or does not apply without taking advice.
VAT treatment
Share sale
The sale of shares is an exempt supply for VAT purposes. No VAT is charged on the share purchase price.
Asset sale
The sale of business assets may or may not attract VAT, depending on whether the Transfer of Going Concern (TOGC) conditions are met. If TOGC applies (seeVAT and TOGC Guide), no VAT is charged. If TOGC does not apply, VAT at 20% must be charged on taxable business assets.
For property included in the sale, the opted-to-tax position of both parties must be checked carefully.
The legal process compared
Share sale legal documents
The main document in a share sale is theShare Purchase Agreement (SPA). This is typically a lengthy and detailed agreement covering:
The shares being purchased and the price
Conditions to completion
Seller warranties (representations about the state of the business)
Indemnities (specific protections for known risks)
Completion mechanics
Restrictive covenants (non-compete, non-solicitation)
Limitations on warranty claims
The SPA is supplemented by disclosure letters (in which the seller qualifies the warranties by disclosing known issues), board minutes approving the transaction, and stock transfer forms.
Asset sale legal documents
An asset purchase is documented in aBusiness Purchase Agreement (BPA)orAsset Purchase Agreement (APA). This covers:
Specified assets being purchased and the price apportionment
Excluded assets and liabilities
TUPE notification and consultation documentation
Consent letters from customers, suppliers and landlord
Novation agreements for key contracts
Lease assignment documentation
Conditions to completion
Seller warranties (more limited than in a share sale — primarily about title to assets)
Asset purchases typically involve more third-party coordination but simpler warranties from the seller, because the buyer is not taking on historical liabilities.
When a share sale is preferred
Share sales are generally preferred:
By sellers— because of more favourable CGT treatment and potential BADR eligibility
Where the company's contracts include change of control protections that make asset transfers impractical
Where the company holds licences, permits or accreditations that are difficult to transfer (though these may still need regulatory notification)
For larger, more complex businesses where the administrative burden of individually transferring assets would be very significant
Where speed is important — share sales can be faster to execute once documentation is agreed
When an asset sale is preferred
Asset sales are generally preferred:
By buyers— to avoid inheriting the company's historical liabilities and tax history
Where the business has a complex or uncertain liability history (litigation, HMRC disputes, employment issues)
Where the buyer wants to select only certain assets and leave others behind
Where the buyer wants to build a deductible asset base for tax purposes
For smaller or simpler businesses where the asset list is short and contracts are straightforward
Where the seller's company has assets or issues outside the trading business that the buyer does not want
Negotiating the structure
Because sellers prefer share sales and buyers prefer asset sales, deal structure is a genuine negotiating point. Common outcomes:
Price premium for asset sale:The seller agrees to an asset sale in exchange for a higher total price, to compensate for the less favourable tax treatment. The additional consideration is sometimes called a "tax uplift" and is calculated by reference to the additional tax the seller will pay.
Share sale with indemnities:The buyer accepts a share sale but requires comprehensive warranties, specific indemnities for known risks, and an escrow (portion of the price held back for a period to cover warranty claims).
Mixed structure:In some cases, the deal is structured partly as a share sale and partly as an asset transfer — for example, where some assets are held in a group structure or where specific assets need to be separated.
Both parties should take independent legal and tax advice on the structure before heads of terms are signed. Changing the structure after heads of terms are agreed is possible but creates delay and additional cost.
FAQs
Why do sellers prefer share sales?
Because the proceeds are received as capital (subject to CGT and potentially BADR), whereas an asset sale routes proceeds through the company and creates a double taxation problem: corporation tax on the gain, then income or CGT on extraction. The effective tax rate on an asset sale is typically significantly higher for the seller.
Why do buyers prefer asset purchases?
Because they can select which assets and liabilities to take on, avoiding the company's historical liabilities, tax history and any undisclosed obligations. Asset purchases also allow the buyer to build a deductible cost base against future taxable profits.
Can I change the structure after making an offer?
Yes, but it is harder once heads of terms are agreed. The time to negotiate deal structure is before or during heads of terms — not after. If you agree a share sale in heads of terms and then try to switch to an asset sale, the seller may object or require additional consideration.
What is a warranty in a share purchase?
A warranty is a contractual statement by the seller about the state of the business — for example, "the accounts give a true and fair view," "there are no undisclosed litigation claims," or "all tax returns are up to date." If a warranty proves to be false, the buyer has a contractual claim against the seller for the loss suffered. Warranties in a share sale are more extensive than in an asset sale because the buyer is inheriting the full company history.
What is an indemnity?
An indemnity is a specific promise to pay the buyer pound-for-pound for a defined type of loss. It is used for specific, identified risks — for example, a known tax dispute, a potential dilapidations claim, or a specific regulatory issue. Indemnities are stronger protection than warranties for specific known risks.
Does stamp duty apply to a business sale?
In a share sale, the buyer pays stamp duty of 0.5% on the consideration (rounded up to the nearest £5). In an asset sale, stamp duty does not apply — but Stamp Duty Land Tax (SDLT) applies to any freehold or leasehold property transferred as part of the deal, at rates depending on the property value and type.
Should I get professional advice on deal structure?
Yes. The choice between share sale and asset sale has significant tax, legal and commercial consequences for both parties. You must take independent legal and tax advice before agreeing deal structure. This guide is for general education only.
Key takeaways
In a share sale, the buyer acquires the company (and everything in it, including liabilities); in an asset sale, the buyer acquires specified assets only.
Sellers generally prefer share sales because CGT (and potentially BADR) applies — typically more tax-efficient than the double taxation of an asset sale.
Buyers generally prefer asset purchases to avoid inheriting historical liabilities, and to build a deductible tax base.
In an asset sale, contracts must be individually transferred, the lease must be formally assigned (with landlord consent), and TUPE applies to staff transfers.
In a share sale, contracts remain with the company, but change of control clauses may allow counterparties to exit.
VAT is exempt on a share sale; TOGC may apply to an asset sale if conditions in HMRC VAT Notice 700/9 are met.
Deal structure is negotiable — sellers often accept an asset sale in exchange for a higher price; buyers accept a share sale in exchange for comprehensive warranties and indemnities.
Seek independent legal and tax advice on deal structure before agreeing heads of terms.
Related resources
Important disclaimer
Buy a Business Ltd is a marketplace, not a broker. Information, guides, checklists and examples on this site are for general guidance only and do not constitute legal, tax, financial, investment, valuation, brokerage or regulated advice.
The choice of deal structure has significant legal and tax consequences. You must seek independent professional advice — from a qualified solicitor and tax adviser — before agreeing deal structure, heads of terms or completing any transaction.
Sources and useful references
HMRC: Capital Gains Tax and Business Asset Disposal Relief (HS275)
HMRC: VAT Notice 700/9 — Transfer of a Going Concern
GOV.UK: TUPE guidance for employers
Companies House: Share transfer guidance
ICAEW: Business sale structure guidance