The tax you pay when selling a UK business depends on how the business is structured, what you are selling, when you sell, and whether you qualify for reliefs. Getting this wrong — or failing to plan before you exchange — can cost significantly more than the cost of good advice.
Quick Answer
When you sell a UK business, the main tax is Capital Gains Tax (CGT) on the gain you make. For qualifying sales, Business Asset Disposal Relief (BADR) reduces the CGT rate on the first £1 million of qualifying gains over a lifetime. As of 2026, the BADR rate is 18% (for gains within the basic rate band) and 14% transitionally, moving to 18% as the single rate. For gains outside BADR, the CGT rate is 18% (basic rate taxpayer) or 24% (higher/additional rate taxpayer).
In short:tax planning should start before you agree deal terms — not after. The structure of the deal, the timing, and your qualifying status for reliefs can all affect the tax outcome materially.
Important:Tax rates, thresholds and reliefs change. The information in this guide reflects the position as of May 2026. You must seek independent, qualified tax advice before agreeing deal terms, finalising deal structure or completing a business sale.
Contents
Overview of taxes on a business sale
The taxes that arise on a business sale depend on the structure of the deal and the structure of the business. The main taxes to consider are:
Capital Gains Tax (CGT):The primary tax for individuals selling shares in a company or business assets. Charged on the gain (not the gross proceeds).
Corporation Tax:If the company itself sells assets (rather than shareholders selling shares), the gain is a corporate gain taxed at the corporation tax rate inside the company.
Income Tax:Arises where proceeds are structured as employment income, consultancy fees, bonuses or similar — which can happen if elements of the deal are treated as earnings rather than capital receipts.
VAT:Usually not charged on the sale of a going concern if TOGC conditions are met. See theVAT and TOGC Guidefor detail.
Stamp Duty / SDLT:Payable by the buyer, not the seller, on share purchases (0.5%) and on property.
Capital Gains Tax on a business sale
When an individual sells shares in a company, or business assets held personally, the profit (the gain) is subject to Capital Gains Tax.
What is a chargeable gain?
Your gain is broadly the sale proceeds minus the base cost (what you originally paid for or invested in the asset). For a business built from scratch with no initial share purchase, the base cost may be nominal (e.g. £1 for founder shares), meaning the gain is very close to the total proceeds.
Allowable deductions include:
The original acquisition cost
Enhancement expenditure (costs that improved the asset)
Incidental costs of disposal (legal and accountancy fees specifically relating to the sale)
Annual exempt amount
Every individual has an annual CGT exempt amount — a threshold below which gains are not taxable. For 2026/27, the annual exempt amount is £3,000. This is a very small allowance relative to most business sale gains and should not be relied on as a meaningful tax reduction.
CGT is self-assessed
Capital Gains Tax on a business sale is declared and paid through Self Assessment. The gain must be reported in the tax return for the relevant tax year. Payment is due by 31 January following the end of the tax year in which completion occurred.
Business Asset Disposal Relief (BADR)
Business Asset Disposal Relief (formerly Entrepreneurs' Relief) is the most important CGT relief for business sellers in the UK. It reduces the CGT rate on qualifying gains.
What BADR does
BADR taxes qualifying gains at a reduced rate rather than the standard CGT rate. It applies to the first £1 million of qualifying lifetime gains per individual — not per business sale.
BADR rates in 2026
Following changes announced in the October 2024 Autumn Budget and implemented from April 2025:
For disposals from 6 April 2025 to 5 April 2026: BADR rate is14%
For disposals from 6 April 2026 onwards: BADR rate is18%
The £1 million lifetime limit applies across all qualifying BADR claims you make in your lifetime. If you have previously used BADR on an earlier disposal, the remaining lifetime limit is reduced accordingly.
Who qualifies for BADR?
To claim BADR on the sale of shares in a company, you must (at the date of disposal) have been:
An employee or officer of the company for at least two years
Holding at least 5% of the ordinary shares
Entitled to at least 5% of the distributable profits and at least 5% of the assets on a winding up
All three conditions must have been met throughout the two years ending on the date of disposal (or the date the business ceased, if that is earlier).
For a sole trader or partnership selling business assets, different conditions apply — the business must have been owned and actively traded for at least two years.
What BADR does not cover
The first £1 million is the lifetime cap — gains above £1 million are taxed at standard CGT rates
Investment assets held within the company may not qualify
Shares in a company that is not a trading company (e.g. an investment holding company) generally do not qualify
Cash and investment assets within a trading company may need to be separated
Planning for BADR
The conditions for BADR must be met at the date of disposal. If you have reduced your shareholding below 5%, changed your role, or the company has changed its trading status, you may lose eligibility. Planning ahead — ideally at least two years before a planned sale — is essential.
You must seek independent, qualified tax advice on whether you qualify for BADR before agreeing deal terms or setting a completion date.
CGT rates in 2026
For gains outside BADR (or above the £1 million lifetime limit), the standard CGT rates for 2026/27 are:
Basic rate taxpayer - 18%
Higher or additional rate taxpayer - 24%
BADR qualifying (disposal from 6 April 2026) - 18%
BADR qualifying (disposal 6 April 2025 – 5 April 2026) - 14%
Note: CGT rates changed significantly in October 2024 and April 2025. The rates above reflect the position as of May 2026. Always verify current rates with HMRC or your tax adviser.
Calculating your gain
A simplified example:
Sale price: £800,000
Base cost (original investment/subscription price): £10,000
Legal and accountancy disposal costs: £12,000
Chargeable gain:£800,000 − £10,000 − £12,000 = £778,000
Annual exempt amount: £3,000
Taxable gain:£775,000
If BADR applies (disposal from April 2026):
Tax on £775,000 at 18% =£139,500
If BADR does not apply and you are a higher rate taxpayer:
Tax on £775,000 at 24% =£186,000
The difference in this example is £46,500 — which illustrates why qualifying for BADR and planning the disposal timing can be highly significant.
This is a simplified illustration. Your actual calculation will depend on your other income in the year, your annual exempt amount, the exact disposal date, deductible costs, and whether any portion of the gain does not qualify for BADR. You must seek independent, qualified tax advice for an accurate calculation.
Share sale vs asset sale — tax perspective
The structure of the deal has a major impact on the tax outcome for the seller. See theShare Sale vs Asset Sale Guidefor a full comparison.
Share sale (seller perspective)
In a share sale, the seller disposes of their shares. This is typically the more tax-efficient structure for an individual seller because:
BADR may apply to the share gain
CGT treatment applies — usually at 18% or 24%
The transaction is clean — the company (and all its history) transfers to the buyer
Asset sale through a company (seller perspective)
If the company sells its trading assets (rather than the shareholders selling shares), the gain sits inside the company and is subject tocorporation tax(currently 25% for profits over £50,000 in 2026/27). The after-tax proceeds then sit in the company as cash.
To extract that cash personally (e.g. by liquidating the company or paying a dividend), you may face further tax — either dividend income tax or, if the company is wound up by a licensed insolvency practitioner, a distribution in winding up that may qualify for CGT treatment.
For most individual sellers of small businesses, a share sale is more tax-efficient than an asset sale through a company — but this depends on the specific circumstances. The buyer's preference for an asset purchase (to avoid inheriting company liabilities) creates a common tension in negotiations.
VAT on a business sale
The sale of a business as a going concern may qualify as a Transfer of Going Concern (TOGC) for VAT purposes, which means VAT is not charged on the sale price. This is administratively simpler and avoids the buyer having to fund a large VAT payment while waiting to reclaim it.
The TOGC conditions are set out in HMRC VAT Notice 700/9 and must be met precisely. They include:
The assets transferred must be used by the buyer to carry on the same type of business
The buyer must be VAT registered (or become VAT registered as a result of the transfer)
There must be no break in trading
TOGC is not automatic — both parties must be aware of and satisfy the conditions. If the conditions are not met, VAT must be charged on the sale of business assets. See theVAT and TOGC Guidefor the full detail.
Income tax considerations
Most of the proceeds from a business sale should be capital receipts — taxed as CGT. However, elements of the deal can attract income tax if they are structured (or reclassified by HMRC) as earnings.
Watch for:
Restrictive covenants
Where a seller agrees to a non-compete clause, HMRC may treat the payment attributed to that covenant as taxable income rather than a capital gain. If a portion of the purchase price is specifically attributed to a non-compete, take tax advice on how it is characterised.
Consultancy agreements and transitional payments
If the seller agrees to work for the buyer post-completion on a consultancy or employment basis, those payments are income — not capital. Be clear on what is purchase consideration and what is post-completion employment or consulting income.
Earn-outs
The tax treatment of earn-outs depends on how they are structured. If an earn-out is linked to the seller remaining employed post-completion (i.e. it is partly contingent on continued service), HMRC may seek to treat some or all of it as employment income rather than capital. Take specific advice on earn-out structuring.
Corporation tax on an asset sale through a company
If a limited company sells its trading assets, the gain is charged to corporation tax. In 2026/27, the corporation tax rate is:
19%for profits up to £50,000 (small profits rate)
25%for profits above £250,000 (main rate)
Marginal relief applies between £50,000 and £250,000
The effective rate for most business sales generating significant gains will be 25%. Compare this with the CGT position for a share sale before agreeing deal structure.
Following an asset sale, the proceeds (after corporation tax) sit inside the company. To get the money out personally, you will face further tax — either as a dividend (taxed at 8.75%, 33.75% or 39.35% depending on your tax band, above the £500 dividend allowance) or through a formal winding-up (which may qualify for CGT treatment if handled through a licensed insolvency practitioner).
The combined effective tax rate on an asset sale followed by extraction of proceeds can be materially higher than a direct share sale with BADR. This is why sellers strongly prefer share sales from a tax perspective.
Tax planning before you sell
Tax planning is most effective when started well before the sale — ideally two or more years in advance. Steps to consider:
Confirm BADR eligibility early.Check that you meet the shareholding, employment and trading conditions while you still have time to address any gaps.
Review your company's trading status.If your company holds investment assets or non-trading activities alongside the core business, this may affect BADR eligibility. A trading company must derive substantially all of its activities from trading.
Consider the timing of the disposal.If you are close to the end of a tax year, completing after 5 April rather than before can defer the CGT payment by up to 12 months. The difference in BADR rates (14% for disposals before April 2026, 18% after) may also affect optimal timing.
Understand how earn-outs will be taxed.Earn-outs create deferred gains — the gain on deferred elements arises when the right to receive payment becomes certain or the payment is received. The tax treatment of contingent and deferred consideration is complex.
Discuss deal structure with your accountant before negotiating.The buyer's preference for an asset purchase and the seller's preference for a share sale creates a common tension. Understanding the tax cost of each structure allows you to negotiate an adjusted price if the buyer insists on an asset purchase.
Seek advice on extracting value before sale.Pre-sale dividends, pension contributions, EMI option schemes and other tax-efficient extraction strategies may be available but must be taken with legal and tax advice well in advance.
Timing and tax year
The date of disposal for CGT purposes is generally the date of exchange of contracts — not the date of completion — where exchange and completion are separate events. In most SME deals, exchange and completion happen simultaneously, so this distinction does not arise. But where they are split, the tax year in which the gain falls is determined by the exchange date.
CGT is reported and paid through Self Assessment. The payment deadline is 31 January following the end of the relevant tax year. For a disposal in the 2026/27 tax year (exchange between 6 April 2026 and 5 April 2027), the CGT payment deadline is 31 January 2028.
Tax preparation checklist
Confirm deal structure — share sale or asset sale — with your accountant before negotiating
Verify BADR eligibility — shareholding percentage, two-year qualifying period, employment status
Check the company's trading status — is BADR qualification at risk from investment assets?
Calculate your estimated gain and estimated tax liability before agreeing price
Consider the disposal timing relative to the tax year
Understand how any earn-out elements will be taxed
Check whether any non-compete payments may attract income tax
Review post-sale extraction strategy for proceeds remaining in the company
Confirm TOGC conditions with your accountant for any asset purchase element
Instruct a qualified tax adviser before agreeing deal terms
FAQs
Do I pay tax when I sell my business?
Yes. The main tax is Capital Gains Tax on the gain you make from the sale. If you qualify for Business Asset Disposal Relief, the rate may be lower than the standard CGT rate. The exact amount depends on your qualifying status, the size of your gain, and your overall income in the tax year.
What is Business Asset Disposal Relief?
BADR (formerly Entrepreneurs' Relief) reduces the CGT rate on the first £1 million of qualifying lifetime gains from the sale of business assets or qualifying shares. As of April 2026, the BADR rate is 18%. It is subject to qualifying conditions around shareholding, employment status and trading activity.
How much tax will I pay on selling my business?
This depends on: whether BADR applies, the size of your gain, your other income in the tax year, and the deal structure. As a rough guide, a BADR-qualifying gain of £500,000 from April 2026 would attract approximately £90,000 in CGT (18%), against approximately £120,000 at the standard higher rate (24%). You must seek qualified tax advice for an accurate calculation.
Is it better to sell shares or assets for tax purposes?
For most individual sellers, a share sale is more tax-efficient because it allows BADR to apply and avoids double taxation (corporation tax in the company plus personal extraction tax). However, buyers generally prefer asset purchases to avoid inheriting company liabilities. The negotiation between these positions often results in a price adjustment to compensate the seller for the less favourable tax treatment of an asset sale.
What happens if I complete an earn-out?
Earn-outs create deferred gains. The initial consideration is taxed in the year of disposal. Deferred earn-out payments are typically taxed when the right to receive them becomes certain or the payment is received. If the earn-out is linked to post-sale employment, income tax may apply instead of CGT. Take specific tax advice on earn-out structuring before agreeing terms.
Can I avoid CGT on a business sale?
Not typically. Legitimate tax reliefs — BADR, the annual exempt amount, allowable deductions — reduce the amount payable. Gifting shares to a spouse before sale can use their annual exempt amount and potentially their lower BADR allowance. More complex structures (trusts, pension contributions, EIS reinvestment relief) may be available in specific circumstances. Take qualified tax advice well before the sale if you are exploring these options.
When do I have to pay the CGT?
CGT on business disposals is reported and paid through Self Assessment, due by 31 January following the end of the tax year in which the disposal occurred. Unlike residential property gains (which require 60-day reporting), business asset disposals do not have an accelerated reporting requirement — though you should still plan for the payment date.
Should I get professional advice?
Yes. You must seek independent, qualified tax advice before agreeing deal terms, choosing deal structure or setting a completion date. Tax law in this area is complex and changes frequently. This guide is for general education only and does not constitute tax advice.
Key takeaways
Capital Gains Tax is the main tax on a business sale for individual sellers — charged on the gain, not the gross proceeds.
Business Asset Disposal Relief (BADR) reduces the CGT rate to 18% (from April 2026) on the first £1 million of qualifying lifetime gains.
The standard CGT rate is 18% (basic rate) or 24% (higher/additional rate) for gains outside BADR.
BADR requires at least a 5% shareholding and two years of qualifying employment — check eligibility early.
A share sale is typically more tax-efficient for the seller; an asset sale may trigger corporation tax inside the company plus further personal extraction tax.
VAT is usually not charged on a business sale if the TOGC conditions in HMRC VAT Notice 700/9 are met.
Earn-outs, non-compete payments and post-sale consultancy can attract income tax rather than CGT — structure carefully.
Tax planning should start well before the sale — not after heads of terms are agreed.
You must seek independent, qualified tax advice before agreeing deal terms, deal structure or completion date.
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.
Tax rates, thresholds and reliefs change. The information in this guide reflects the general position as of May 2026. You must seek independent, qualified tax advice before making any decision about selling a business, choosing deal structure, or agreeing completion timing.
Sources and useful references
HMRC: Capital Gains Tax — rates, reliefs and reporting
HMRC: Business Asset Disposal Relief guidance (HS275)
HMRC: VAT Notice 700/9 — Transfer of a going concern
GOV.UK: Corporation tax rates 2026/27
ICAEW: Business sale tax planning guidance