Selling your business: tax planning and exit considerations for 2026/27

Selling your business is one of the most important financial decisions you will make as a business owner. Whether you are retiring, pursuing a new venture, bringing in investors or implementing a succession plan, the way you prepare for the transaction can have a significant impact on the amount you ultimately receive after tax.

Many owners spend months negotiating the purchase price but overlook the tax consequences until the legal documentation is almost complete. By that stage, opportunities to improve the tax position may have been lost. Any gain arising from the sale is charged under the wider Income Tax and CGT framework explained in our ultimate guide to personal tax in the UK. Early business exit planning allows you to review the structure of the sale, confirm eligibility for reliefs and identify potential issues before negotiations become fixed.

This guide explains the tax considerations when preparing to sell your business, how Business Asset Disposal Relief works, the difference between selling shares and selling business assets, and why careful planning before Heads of Terms can improve your overall after-tax outcome.

Why business exit planning should start early

Successful exits rarely happen by accident. Most well-structured business sales involve months of commercial, legal and financial preparation before the business is placed on the market.

Starting your business exit planning early allows sufficient time to review:

• Your current shareholding structure.
• Whether the company qualifies as a trading company.
• Your eligibility for Business Asset Disposal Relief.
• Any non-trading assets that could affect relief.
• Outstanding tax or Companies House compliance matters.
• The preferred transaction structure.

Leaving these reviews until after negotiations have begun can significantly reduce your options and may increase the tax payable on completion.

Preparing to sell your business

Preparing to sell your business involves much more than obtaining a valuation. Buyers will usually carry out extensive due diligence before committing to the purchase.

Before marketing the business, owners should consider:

• Ensuring statutory accounts are up to date.
• Preparing accurate management accounts.
• Reviewing shareholder agreements.
• Checking Companies House filings.
• Confirming ownership of intellectual property.
• Reviewing customer and supplier contracts.
• Resolving outstanding tax enquiries.
• Ensuring payroll, VAT and Corporation Tax obligations are current.

Well-prepared businesses often complete transactions more efficiently because fewer issues arise during due diligence.

Business sale tax explained

One of the first questions to answer is how the transaction will be taxed.

The tax treatment depends largely on what is being sold.

In most transactions, either:

• The shareholders sell their shares; or
• The company sells its business assets.

Although both transactions may achieve the same commercial objective, the tax consequences can be very different.

Where shareholders sell their shares personally, the gain usually falls within the Capital Gains Tax regime.

Where the company sells its assets instead, the company may first pay Corporation Tax on taxable gains or trading profits before shareholders consider how to extract the proceeds. This can create a second layer of personal taxation depending on how funds are distributed.

Understanding these differences is one of the most important aspects of effective business sale tax planning.

Selling shares or selling business assets

The structure of the transaction often reflects negotiations between buyer and seller.

Share sale

Under a share sale, the buyer purchases the shares directly from the existing shareholders and acquires ownership of the company together with its assets, liabilities and trading history.

Advantages for sellers often include:

• Capital Gains Tax treatment on the share disposal.
• Potential eligibility for Business Asset Disposal Relief.
• Sale proceeds being received directly by shareholders.
• A simpler extraction of value after completion.

However, buyers may be more cautious because they also acquire historic liabilities of the company.

Asset sale

With an asset sale, the company retains ownership while selling selected business assets.

These may include:

• Property.
• Plant and machinery.
• Goodwill.
• Trading stock.
• Customer contracts.
• Intellectual property.

The company usually receives the proceeds and may pay Corporation Tax before shareholders extract any remaining funds.

Depending on the extraction method, further personal tax may also arise.

For this reason, many owner-managed businesses prefer a share sale where commercially possible.

Business Asset Disposal Relief explained

Business Asset Disposal Relief (BADR) is one of the most valuable Capital Gains Tax reliefs available to qualifying business owners.

Where the conditions are met, qualifying gains benefit from a reduced Capital Gains Tax rate compared with the standard rates.

The relief may apply to:

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

Business Asset Disposal Relief is not automatic. Every qualifying condition must be satisfied immediately before disposal. Successfully navigating Business Asset Disposal Relief as a UK entrepreneur therefore depends on reviewing these conditions well ahead of any sale.

Qualifying for Business Asset Disposal Relief

For shareholders selling shares, the main qualifying conditions generally include:

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

Where these conditions are not satisfied, the disposal may instead be taxed under the normal Capital Gains Tax rules.

Small changes to shareholdings or company structure before completion can sometimes affect eligibility, making an early review particularly important.

Business Asset Disposal Relief rates in 2026/27

For qualifying disposals made on or after 6 April 2026, Business Asset Disposal Relief applies a reduced Capital Gains Tax rate of 18% on qualifying lifetime gains up to the £1 million lifetime limit. This is a change from an earlier period when qualifying business asset disposals were taxed at 10%, so completion timing matters when working out which rate applies.

The lifetime limit applies across all qualifying disposals made during your lifetime rather than on each individual business sale. If previous claims have already used part of the allowance, only the remaining balance will qualify for the reduced rate.

Any gains that exceed the lifetime limit, or gains that do not qualify for BADR, are taxed using the standard Capital Gains Tax rules. Checking Business Asset Disposal Relief at the present rates before agreeing terms helps avoid basing a decision on an outdated percentage.

Selling part of your business

Many business owners do not leave the business completely when they first sell. Instead, they may sell part of their shareholding to release capital while continuing to manage or grow the company.

Examples include:

• Introducing a private equity investor.
• Selling shares to a management team.
• Bringing family members into ownership.
• Reducing personal involvement before retirement.

Partial disposals can still create Capital Gains Tax liabilities. Whether Business Asset Disposal Relief remains available depends on the qualifying conditions being satisfied immediately before the disposal.

Where ownership percentages change significantly before completion, professional advice should be obtained to ensure relief is not lost unexpectedly.

Timing your business sale

The timing of a disposal can influence both the commercial value of the business and the overall tax outcome.

Business owners should consider:

• Whether qualifying periods for Business Asset Disposal Relief have been completed.
• Expected changes to tax legislation.
• The company’s recent financial performance.
• Current market conditions.
• Personal retirement or succession plans.

Rushing into a transaction before qualifying conditions have been met can result in significantly higher tax liabilities than waiting until the conditions are satisfied.

Deferred consideration and earn-outs

Business sales frequently involve payments being made over time rather than entirely on completion.

Deferred consideration arrangements may include:

• Fixed instalments payable after completion.
• Performance-related earn-outs.
• Payments linked to future profits.
• Completion account adjustments.

These arrangements can affect both the timing of tax liabilities and the amount eventually received by the seller.

Understanding how deferred consideration is taxed before signing the sale agreement helps avoid unexpected cash flow pressures after completion.

Due diligence before marketing your business

Most purchasers will undertake detailed due diligence before committing to a transaction.

Preparing thoroughly can reduce delays and improve buyer confidence.

Areas commonly reviewed include:

• Corporation Tax compliance.
• VAT and PAYE records.
• Companies House filings.
• Employment contracts.
• Commercial agreements.
• Property ownership.
• Intellectual property rights.
• Outstanding legal disputes.

Resolving issues before entering negotiations often reduces the risk of price reductions later in the process.

Common mistakes when selling your business

Many business owners lose valuable tax planning opportunities simply because advice is sought too late.

Common mistakes include:

• Leaving tax planning until after Heads of Terms have been agreed.
• Assuming Business Asset Disposal Relief automatically applies.
• Failing to review the company’s trading status.
• Ignoring changes to share ownership before disposal.
• Accepting an asset sale without considering the additional tax implications.
• Overlooking deferred consideration when negotiating the purchase price.
• Not retaining records supporting the original acquisition cost of shares.

Early planning allows more flexibility and often produces a better after-tax outcome than attempting to restructure the transaction immediately before completion.

Worked example: planning a business exit

Helen owns 100% of the shares in a successful engineering company that she has operated for more than ten years.

She receives an offer of £1.8 million for the business.

Before entering formal negotiations, Helen reviews her eligibility for Business Asset Disposal Relief, confirms the company continues to qualify as a trading company and checks that all ownership conditions have been satisfied for the required period.

The transaction is structured as a share sale rather than an asset sale, allowing Helen to dispose of her shares directly.

Because she planned the sale well in advance, she qualifies for Business Asset Disposal Relief on the first £1 million of qualifying lifetime gains, with any remaining gain taxed under the standard Capital Gains Tax rules.

Had she delayed reviewing the tax position until after negotiations were complete, restructuring opportunities may have been unavailable, resulting in a higher overall tax liability.

Key takeaways

Selling your business successfully requires more than agreeing a purchase price. The structure of the transaction, the availability of reliefs and the timing of the disposal all influence the amount you ultimately retain after tax.

Effective business exit planning should begin well before marketing the business. Reviewing ownership structures, confirming eligibility for Business Asset Disposal Relief and understanding the differences between share sales and asset sales can significantly improve the overall tax outcome.

By preparing to sell your business early and considering the wider business sale tax implications before Heads of Terms are agreed, business owners place themselves in the strongest possible position to maximise value while remaining fully compliant with HMRC requirements.

Case Study: Planning an Exit Strategy Before Putting the Business on the Market

A business owner visited our Wimbledon office while preparing to sell a long-established company as part of their retirement plans. Although they had already received interest from potential buyers, they wanted to understand whether they qualified for Business Asset Disposal Relief (BADR) and whether the proposed deal structure would leave them with the best after-tax outcome.

We carried out a detailed review of the company’s trading status, shareholding structure and compliance history before negotiations progressed. By assessing the proposed transaction early, we confirmed the qualifying conditions for Business Asset Disposal Relief, compared the tax implications of a share sale and an asset sale, and highlighted areas that could affect the overall tax position if left until later in the process. This gave the client confidence to move forward with a well-planned exit strategy while reducing the risk of unexpected tax liabilities during the sale.