Selling a company: Capital Gains Tax and Business Asset Disposal Relief in 2026/27

Selling a company is one of the most significant financial decisions a business owner can make. Whether you are retiring, bringing in new investors or planning a succession strategy, the way the transaction is structured can have a major impact on the amount of tax you ultimately pay.

Many business owners focus on negotiating the sale price, but the tax treatment of the transaction can be equally important. Selling shares, selling business assets or deciding to sell part of a company each produce different tax outcomes, and failing to plan early may result in a higher tax bill than expected.

For many qualifying business owners, Business Asset Disposal Relief (BADR) can reduce the Capital Gains Tax rate on qualifying gains. However, strict qualifying conditions apply, and failing to meet them can mean paying the standard Capital Gains Tax rates instead. These rates interact with your wider Income Tax position, explained fully in our ultimate guide to personal tax in the UK.

This guide explains how company sale tax works, the difference between share sales and asset sales, when Business Asset Disposal Relief is available and the planning opportunities that should be considered before a sale is agreed.

How selling a company is taxed

When you sell all or part of a business, the tax treatment depends on what is actually being sold.

In most transactions, one of two structures is used:

• A sale of shares by the shareholders.
• A sale of business assets by the company.

Although both may appear commercially similar, they can produce very different tax results.

Where shareholders sell their shares, any gain is generally subject to Capital Gains Tax. Where the company sells its assets instead, the company usually pays Corporation Tax on any chargeable gains or taxable profits before shareholders consider how to extract the sale proceeds.

Understanding the difference at an early stage is one of the most effective ways to improve the overall after-tax value of the transaction.

How Capital Gains Tax is calculated

Where you sell shares personally, the capital gain is broadly calculated as:

Sale proceeds − acquisition cost − allowable disposal costs = chargeable gain

From that gain, you may then deduct:

• Available capital losses.
• The Annual Exempt Amount where applicable.
• Any qualifying reliefs, including Business Asset Disposal Relief.

The remaining taxable gain is then charged at the appropriate Capital Gains Tax rate.

Keeping accurate records of the original share purchase, subscription documents and professional costs incurred during the sale is important because these costs may affect the final tax calculation.

Selling shares or selling business assets

One of the earliest commercial decisions is whether the buyer will acquire the company’s shares or purchase selected business assets.

Share sale

Under a share sale, the buyer acquires ownership of the company itself by purchasing shares from the existing shareholders.

This is often attractive for sellers because:

• The gain usually arises personally rather than within the company.
• Business Asset Disposal Relief may be available if the qualifying conditions are satisfied.
• The seller normally receives the sale proceeds directly.

However, buyers sometimes prefer asset purchases because they may avoid acquiring historic liabilities of the company.

Asset sale

With an asset sale, the company sells individual business assets rather than the shareholders selling their shares.

Assets may include:

• Goodwill.
• Property.
• Plant and machinery.
• Stock.
• Customer contracts.
• Intellectual property.

The proceeds belong to the company rather than the shareholders personally.

The company may first pay Corporation Tax on any taxable gains or trading profits arising from the sale. If shareholders later withdraw those funds, a second layer of personal taxation may arise depending on how the money is extracted.

This is why many owner-managed businesses prefer a share sale where commercially possible.

Company sale tax: share sale vs asset sale

The overall company sale tax position often depends more on the structure than the sale price itself.

Although tax should not be the only deciding factor, understanding these differences before negotiations begin allows both parties to assess the true after-tax outcome.

Business Asset Disposal Relief explained

Business Asset Disposal Relief is a valuable Capital Gains Tax relief available to qualifying business owners.

Where the conditions are met, qualifying gains are taxed at a reduced rate rather than the standard Capital Gains Tax rates.

The relief is intended to support entrepreneurs and owner-managers who have built and operated trading businesses before selling them.

BADR can apply to:

• The sale of shares in a personal trading company.
• The disposal of a sole trader business.
• The disposal of an interest in a partnership.
• Certain business assets sold after the business has ceased.

Given how many different scenarios can qualify, navigating Business Asset Disposal Relief as a UK entrepreneur is rarely straightforward and benefits from an early, thorough review.

However, satisfying the qualifying conditions is essential. Simply owning shares in a company does not automatically create entitlement to the relief.

Conditions for Business Asset Disposal Relief

The qualifying conditions vary depending on the transaction, but shareholders generally need to satisfy several requirements throughout the qualifying period before disposal.

Common conditions include:

• The company must usually be a trading company or the holding company of a trading group.
• The seller must generally be an employee or office holder of the company.
• The seller must normally hold at least 5% of the ordinary share capital.
• The seller must usually hold at least 5% of the voting rights.
• The qualifying conditions generally need to be satisfied for at least two years before the disposal.

Additional conditions may apply depending on the rights attached to the shares and the commercial structure of the business.

Because eligibility is tested immediately before disposal, changes to shareholdings, company structure or employment status shortly before a sale can unintentionally affect entitlement to Business Asset Disposal Relief.

Business Asset Disposal Relief rates in 2026/27

For qualifying disposals made on or after 6 April 2026, Business Asset Disposal Relief applies a Capital Gains Tax rate of 18% on qualifying lifetime gains up to the £1 million lifetime limit. This rate has changed several times in recent years, including an earlier period where qualifying business asset disposals were taxed at 10%, so it’s worth confirming which rate applies to your specific completion date.

Where the gain exceeds the lifetime limit, or the qualifying conditions are not met, the excess gain is generally taxed at the standard Capital Gains Tax rates that apply to the individual.

As the relief has become less generous over time, ensuring you qualify before entering into a sale agreement is more important than ever. Checking Business Asset Disposal Relief at the present rates before finalising a transaction can help avoid relying on an outdated percentage.

Selling part of a company

Not every transaction involves a complete exit. Many entrepreneurs choose to sell part of a company while remaining involved in the business.

Partial disposals are common where:

• A new investor is introduced.
• A management buyout takes place.
• A private equity investor acquires a minority interest.
• The owner wishes to release part of the value while continuing to run the business.

Although only part of the shareholding is sold, Capital Gains Tax may still arise on the shares disposed of.

Business Asset Disposal Relief may still be available provided the qualifying conditions continue to be met for the shares being sold. Where a shareholder’s percentage holding changes significantly, the availability of relief should be reviewed before the transaction proceeds.

Deferred consideration and earn-outs

Business sales do not always involve receiving the full purchase price on completion.

Many transactions include deferred consideration or earn-out arrangements, particularly where the future performance of the business affects the final sale price.

Examples include:

• Fixed instalments payable over several years.
• Additional payments linked to future profits.
• Performance-related earn-outs.
• Completion accounts adjustments.

These arrangements can affect both the timing and amount of tax payable. Depending on how the agreement is structured, Capital Gains Tax may arise before all of the proceeds have actually been received.

Understanding the tax treatment before agreeing the contract can help avoid unexpected cash flow pressures after completion.

Business sale tax planning before Heads of Terms

One of the biggest mistakes business owners make is waiting until legal agreements have been drafted before seeking tax advice.

Most opportunities to improve business sale tax outcomes exist before Heads of Terms are agreed.

Early planning allows time to review:

• Whether a share sale or asset sale is more tax efficient.
• Eligibility for Business Asset Disposal Relief.
• The company’s trading status.
• Share ownership percentages.
• Employee or director status.
• Potential group restructuring before disposal.
• Deferred consideration arrangements.
• The commercial impact of warranties and indemnities.

Once negotiations are well advanced, opportunities to restructure the transaction may become much more limited.

Preparing your business for sale

Good preparation can make the sale process smoother while reducing tax and commercial risks.

Before marketing the business, owners should consider:

• Ensuring statutory accounts are up to date.
• Reviewing shareholder agreements.
• Resolving outstanding tax compliance issues.
• Checking Companies House records.
• Reviewing contracts with key customers and suppliers.
• Confirming ownership of intellectual property.
• Identifying contingent liabilities.
• Preparing accurate financial forecasts for potential buyers.

Buyers will normally carry out extensive due diligence, and incomplete records can delay negotiations or affect the final purchase price. If you’re at the stage of thinking of selling your business but haven’t yet started preparing, it’s worth reviewing what buyers typically look for before entering the market.

Common tax mistakes when selling a company

Many costly tax issues arise because planning starts too late rather than because the rules are particularly complicated.

Common mistakes include:

• Assuming Business Asset Disposal Relief automatically applies.
• Failing to meet the minimum ownership conditions.
• Ignoring changes to shareholdings before disposal.
• Choosing an asset sale without considering the double layer of taxation.
• Not reviewing deferred consideration arrangements.
• Leaving tax planning until after Heads of Terms have been agreed.
• Failing to retain records supporting the original acquisition cost of shares.

Identifying these issues before negotiations begin often provides significantly greater flexibility than attempting to correct them immediately before completion.

Worked example: selling company shares

David owns 100% of the shares in a successful trading company that he established several years ago.

He agrees to sell the entire company for £2 million.

After deducting his acquisition cost and allowable professional fees, his disposal creates a substantial capital gain.

Because David satisfies the qualifying conditions for Business Asset Disposal Relief, the first £1 million of qualifying lifetime gains benefits from the reduced 18% Capital Gains Tax rate applicable for qualifying disposals in 2026/27.

Any remaining gain above the lifetime limit is taxed under the standard Capital Gains Tax rules.

Had David failed to satisfy the qualifying conditions before the sale, the entire gain could have been taxed at the higher standard rates, significantly increasing the overall tax liability.

Key takeaways

Selling a company involves much more than agreeing a purchase price. The structure of the transaction, the type of assets being sold and the availability of Business Asset Disposal Relief can all have a significant impact on the final amount of tax payable.

Whether you intend to sell your entire business or sell part of a company, reviewing the tax position before Heads of Terms are agreed provides the greatest opportunity to improve the overall after-tax outcome.

Early planning, accurate record keeping and a clear understanding of company sale tax rules can help business owners complete a transaction with greater confidence while avoiding unexpected tax liabilities.

Case Study: Planning the Sale Before Negotiations Began

A business owner visited our Farringdon office after receiving interest from a potential buyer who wanted to acquire their company. They were focused on agreeing the sale price but were unsure whether a share sale or asset sale would be more tax efficient, or whether they qualified for Business Asset Disposal Relief (BADR).

We reviewed the company’s structure, share ownership, trading status and the proposed transaction before Heads of Terms were agreed. After confirming the client met the qualifying conditions for BADR, we explained the tax differences between selling shares and selling business assets, assessed the impact of deferred consideration and highlighted opportunities to improve the overall after-tax outcome before negotiations progressed.

By seeking advice early, the business owner entered negotiations with a clear understanding of the tax implications, structured the transaction more efficiently and avoided costly last-minute changes that could have affected their eligibility for Business Asset Disposal Relief.