Tax on selling a business in the UK

Most owners find out what their sale will cost them in tax far too late, usually from their accountant, usually after the heads of terms are signed. By then the structure of the deal is fixed, and the structure is what decides the tax. The same headline price can leave you with materially different amounts depending on whether you sell shares or assets, when the contract becomes unconditional, and how much of the price is deferred.

This is the map, not advice on your own position.

The short version

| How you sell | Who pays tax first | The main tax | Typical rate for an individual | | --- | --- | --- | --- | | Shares in your company | You | Capital Gains Tax | 18% with Business Asset Disposal Relief, otherwise 18% or 24% | | Assets, by the company | The company | Corporation Tax on its gain | 19% to 25%, then tax again on extraction | | Your sole trade or partnership share | You | Capital Gains Tax | 18% with Business Asset Disposal Relief, otherwise 18% or 24% |

The rates in that table are the ones for disposals on or after 6 April 2026. The rest of this article explains where each number comes from and when it does not apply.

Selling shares: Capital Gains Tax

When you sell shares in your company, you are disposing of an asset you own personally, so the gain is yours and so is the tax. The gain is broadly the price you receive, less what you paid for the shares and the allowable costs of the sale, such as legal and corporate finance fees.

From 6 April 2026, Capital Gains Tax for individuals is charged at 18 per cent on gains that fall within your unused basic rate income tax band, and at 24 per cent on the rest. A sale of any size will push most of the gain into the 24 per cent band, because the basic rate band is small relative to the proceeds of a business.

Every individual also has an annual tax-free allowance for gains, currently £3,000. On a business sale it barely registers, but it is there and it is used first.

The tax is paid through Self Assessment after the sale, so set it aside before spending the proceeds.

Business Asset Disposal Relief

Business Asset Disposal Relief, which used to be called Entrepreneurs' Relief, reduces the rate on qualifying gains. It is the single largest variable in the tax on most owner-managed sales.

The rate has risen in two steps:

| Date of disposal | Business Asset Disposal Relief rate | | --- | --- | | On or before 5 April 2025 | 10% | | 6 April 2025 to 5 April 2026 | 14% | | On or after 6 April 2026 | 18% |

The relief applies to a lifetime total of £1m of qualifying gains per person. That is a lifetime limit, not an annual one, so a previous claim on an earlier business reduces what is left. Gains above the limit are taxed at the ordinary rates.

The conditions for a share sale

For shares in a company, HMRC's conditions have to be met throughout the two years up to the date of sale:

• You are an employee or office holder of the company, or of a company in the same group. A director counts. A passive shareholder who does not work in the business does not.
• The company is a trading company, or the holding company of a trading group. A company whose main activities are investment, such as holding property to let, will not qualify.
• You hold at least 5 per cent of the ordinary shares and at least 5 per cent of the voting rights.
• You are entitled to at least 5 per cent of either the profits available for distribution and the assets on a winding up, or the disposal proceeds if the whole company were sold.

Different rules apply to shares acquired under an Enterprise Management Incentive option, which do not need the 5 per cent tests.

If the company has stopped trading, you can still qualify if you sell the shares within three years of it ceasing to be a trading company.

The conditions for a sole trader or partner

If you sell all or part of an unincorporated business, you need to have been a sole trader or partner and to have owned the business for at least two years before the date of sale. Selling individual assets out of a business that carries on trading will not qualify: it has to be the business, or a distinct part of it.

Claiming it

The relief is not automatic. You claim it, normally through your Self Assessment return, and the deadline is the first anniversary of the 31 January after the end of the tax year of the sale. For a sale in the 2025 to 2026 tax year, that is 31 January 2028.

Selling assets: tax twice

In an asset sale, the company sells its trade and assets to the buyer and the money lands in the company, not with you. That creates two layers of tax.

The company pays first. Gains on its chargeable assets, including goodwill and property, are taxed as part of its profits for Corporation Tax. The main rate is 25 per cent, with a small profits rate of 19 per cent for companies with profits of £50,000 or less and marginal relief between £50,000 and £250,000. A business sale often pushes the company's profits for that year well into the main rate.

You pay second, to get the money out. There are two usual routes.

• Dividends. For the 2026 to 2027 tax year, dividends above the £500 allowance are taxed at 10.75 per cent in the basic rate band, 35.75 per cent in the higher rate band and 39.35 per cent in the additional rate band. On sale proceeds, most of that sits in the higher and additional bands.
• Winding the company up. A distribution made in a formal liquidation is normally treated as a capital gain on your shares rather than income, which can bring it within Capital Gains Tax and, where the conditions are met, Business Asset Disposal Relief. There are anti-avoidance rules aimed at owners who liquidate and then carry on a similar trade, so this is a route to take advice on before relying on it.

The combined result is usually more tax than a share sale for the same price, which is why sellers push for a share sale and why the choice between the two is as much a price negotiation as a legal one. Our guide to share sales and asset sales covers the rest of that trade off: liabilities, employees, contracts and stamp taxes.

When the sale happens, for tax purposes

The date of disposal for Capital Gains Tax is not the day the money arrives. Under the rule HMRC sets out in its Capital Gains Manual:

• For an unconditional contract, the disposal happens when the contract is made.
• For a conditional contract, it happens when the condition is satisfied.

In most share sales, exchange and completion happen on the same day and the question never arises. It arises when they are split, for example where the contract is signed but completion waits for a lender, a landlord's consent or a regulatory approval. Whether that makes the contract conditional in the legal sense, or simply leaves obligations to be performed, depends on the drafting.

This matters most when a rate changes. The Business Asset Disposal Relief rate rose on 6 April 2025 and again on 6 April 2026. A contract that became unconditional on 5 April 2026 carried the 14 per cent rate even if the money arrived weeks later. A contract signed on 5 April 2026 with a genuine condition precedent satisfied on 10 April carried 18 per cent. The dates that count are in the contract, not in your bank statement.

Deferred consideration and earn outs

Very few small business sales pay everything on completion. Part of the price is often deferred, and part may depend on how the business performs after you leave. The tax treats those two things differently, and neither in the way most sellers expect.

A fixed deferred payment is taxed up front. If the amount is known, for example £300,000 payable in two instalments over two years, it is brought into the gain at completion in full, without any discount for the fact that you will not see it for a while. You pay tax on money you have not yet received. If part of it later proves permanently irrecoverable, because the buyer fails, you can claim relief. A shortfall because the payment lost value in the meantime does not qualify, only non-payment does.

An earn out of unknown amount is a separate asset. Where the future payment depends on results and cannot be quantified at completion, the case law HMRC follows treats the right to receive it as an asset in its own right. That right is given a value at completion and the value is part of your sale proceeds then. Each later payment is a disposal of that right, and the difference between what you receive and the value placed on it is a further gain or loss. Because that later gain arises on a different asset, reliefs that applied to the shares, including Business Asset Disposal Relief, may not reach it.

An earn out paid in shares or loan notes can follow different rules. Where the right can only be satisfied by the buyer issuing shares or debentures, a specific provision can treat it as a new security received in exchange for your shares, which defers the gain until you dispose of the securities. Whether that treatment is better for you depends on your position, and there are elections that change it.

Investors' Relief

Investors' Relief is the equivalent relief for outside investors rather than working owners. It applies to ordinary shares in an unlisted trading company that were newly issued to you for cash on or after 17 March 2016 and held for at least three years, and it is generally not available if you have been an officer or employee of the company.

It carries the same rate as Business Asset Disposal Relief, 18 per cent for disposals on or after 6 April 2026, and its lifetime limit was cut from £10m to £1m for disposals on or after 30 October 2024. For most owner-managers it is not the relevant relief, but it can matter to a co-owner who invested without taking a role in the business.

Selling to your employees

Selling to an Employee Ownership Trust has its own Capital Gains Tax relief with its own conditions, and since 26 November 2025 the relief covers half of the gain rather than all of it. It also cannot be combined with Business Asset Disposal Relief on the same disposal. It is a different kind of sale with a different buyer, and our guide to selling to an Employee Ownership Trust covers it in full.

A worked example, simplified

An owner who has never claimed Business Asset Disposal Relief sells all the shares in a trading company on 1 October 2026, with a gain of £1.5m after costs, all received in cash on completion, and has other income that already uses their basic rate band.

| Slice of the gain | Rate | Tax | | --- | --- | --- | | First £1m, with Business Asset Disposal Relief | 18% | £180,000 | | Remaining £500,000, at the higher rate | 24% | £120,000 | | Total, before the annual allowance | | £300,000 |

Without the relief, the whole £1.5m at 24 per cent would be £360,000. If the same business were sold as an asset sale, the company would pay Corporation Tax on its gain first and the owner would then pay again on the way out, which on the same headline price would usually leave materially less.

This ignores the annual allowance, the basic rate band and anything deferred. It shows only the relative size of the numbers.

Take advice, and take it early

Tax on a business sale is decided by facts that are fixed long before completion: who holds the shares, in what proportions, since when, what the company holds besides its trade, and how the price is structured. An accountant brought in during due diligence can tell you what the tax will be. An accountant brought in a year before you go to market can often change it.

Three things are worth doing before you speak to a buyer:

• Confirm your Business Asset Disposal Relief position against every condition, for every shareholder who expects to claim it.
• Decide your preferred structure, share sale or asset sale, and understand the difference in net proceeds between the two at your expected price.
• Model the net proceeds of each offer as it arrives, including the tax on deferred and contingent elements, rather than comparing headline prices.

Our guide to how businesses are valued and the valuation calculator will give you a starting range for the price. What you keep of it is the conversation to have with an adviser, and the step by step guide to selling shows where in the process each decision falls.