Selling a UK Business: CGT, BADR & Corporation Tax

Overview

When you sell a UK business, the tax you pay depends heavily on how the deal is structured. If you sell shares in a limited company, the gain usually sits with you personally and falls within Capital Gains Tax, potentially with Business Asset Disposal Relief reducing the rate if you qualify.

If the company itself sells its trade and assets, the company pays Corporation Tax on the gain, and you then face a second layer of tax when you extract the remaining cash as dividends, capital, or through a liquidation. For sole traders and partnerships, there is no company in between, so gains on business assets flow straight through to the individual owners as chargeable gains.

Each route has different reporting duties, different timing, and different planning opportunities. The right answer depends on your shareholding, how long you've owned the business, whether you've taken prior reliefs, and what the buyer actually wants to acquire. Getting the structure right early, rather than after heads of terms are signed, tends to produce the best outcome.

Key steps

1. Work out what is actually being sold. Before thinking about tax rates, be clear on the transaction. A share sale transfers ownership of the company itself, while an asset sale transfers specific items such as goodwill, equipment, stock, contracts or property. The tax treatment differs sharply between the two, and buyers often prefer assets while sellers often prefer shares.
2. Establish the base cost and the gain. For Capital Gains Tax, the gain is broadly the sale proceeds less what you originally paid, plus allowable costs such as legal fees and certain improvements. For companies disposing of assets, Corporation Tax applies to the chargeable gain calculated under company tax rules, which include indexation for pre-2018 holdings in some cases.
3. Check whether Business Asset Disposal Relief applies. BADR can reduce the CGT rate on qualifying gains up to a lifetime limit. You generally need to have held the shares or business for at least two years, be an officer or employee in the case of share sales, and meet the personal company conditions. Check gov.uk for the current rate and lifetime limit, as both have changed in recent years.
4. Consider timing, instalments and deferred consideration. Deals often include earn-outs, loan notes or deferred payments. These can affect when tax becomes due and whether relief is preserved. Contingent amounts need careful valuation at completion, and adjustments may follow if actual payments differ. The tax year in which the disposal completes can also matter for rates and allowances.
5. Plan the extraction of proceeds from a company sale. If your company sells its trade and assets, the cash sits inside the company until you take it out. Options include dividends, a Members' Voluntary Liquidation to distribute reserves as capital, or retaining funds for a new venture. Each route has different tax consequences and different anti-avoidance rules to watch for.

Common questions