How to Sell Your Business Tax-Efficiently
By Joseph Spiers
Find out how to prepare your business for sale, understand the latest Capital Gains Tax rules, explore available tax reliefs and plan what to do with the proceeds.
Selling your business can be the culmination of years of hard work. Whether you are preparing for retirement, looking for a new challenge or ready to move on to your next venture, you will want to achieve a fair price and keep as much of the proceeds as possible.
However, the amount you receive from a sale is not necessarily the amount you get to keep. The structure of the deal, the assets being sold, your ownership arrangements and the tax reliefs available can all affect your final outcome.
With the right preparation, you may be able to manage your tax liability and avoid costly surprises. Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, may reduce Capital Gains Tax on qualifying gains. Other reliefs may also be relevant, depending on how your business is structured and what you plan to do next.
Here is what to consider when preparing to sell your business tax-efficiently in the UK.
Start planning well before the sale
One of the most effective ways to manage the tax implications of selling a business is to plan early.
Ideally, you should start considering your exit several years before you intend to sell. This gives you time to review your company structure, understand your likely tax position, improve the business’s value and identify any potential issues with eligibility for reliefs.
Last-minute changes to share ownership or business structure may not deliver the tax outcome you expect. Some reliefs require you to meet specific conditions for at least two years, while restructuring can create additional tax or legal complications.
Early planning also gives you time to consider what you want the sale proceeds to achieve. You may need to fund retirement, repay borrowing, support your family or invest in another venture.
Understand how the sale will be taxed
The tax treatment of a business sale depends partly on what is being sold and who owns it.
Selling shares in a limited company
If you own shares in a limited company, you may sell those shares directly to a buyer. The proceeds you receive are generally considered when calculating your personal Capital Gains Tax liability.
Your gain is not necessarily the full sale price. Broadly, it is calculated by deducting the allowable cost of acquiring the shares and any eligible costs or reliefs from the disposal proceeds.
If you qualify, Business Asset Disposal Relief may reduce the Capital Gains Tax rate on some or all of your qualifying gain.
Selling business assets
If your company sells its assets rather than you selling your shares, the tax position can be different. The company may pay Corporation Tax on taxable profits or gains arising from the sale, and extracting the remaining proceeds personally may create a further tax liability.
For a sole trader or business partnership, the sale of business assets can have personal tax implications, including Capital Gains Tax and, in some cases, Income Tax.
The treatment also depends on the type of asset being sold. Property, goodwill,…