Looking to sell a business? Here are the tax planning opportunities available
By Hannah Butcher ACA, Bsc (Hons), FMAAT, FCCA
An effective tax planning strategy can help to reduce your overall liability at the point of selling your business.
While selling a business is arguably the most significant milestone in the journey of a founder, it can also be one of the most complex.
By understanding the tax-saving opportunities available and planning ahead, you can ensure a sale is cost-effective, and you retain as much of the hard-earned value as possible.
How can Business Asset Disposal Relief help?
Formerly known as Entrepreneur’s Relief, Business Asset Disposal Relief (BADR) can reduce the Capital Gains Tax (CGT) bill when disposing of qualifying assets or shares.
The rate of BADR has changed twice in two years, increasing from 10 per cent to 14 per cent from April 2025 and to 18 per cent from April 2026.
For gains above the lifetime cumulative limit of £1 million, you are taxed at the standard CGT rate, which currently sits at 24 per cent for higher and additional rate taxpayers.
With the rate of tax increasing and the lifetime limit lowered from the previous £10 million, proactive tax planning is needed to do some of the heavy lifting BADR used to do.
To qualify for BADR, both of the following must apply for at least two years up to the date you sell your business:
- You’ve been the business owner for at least two years
- You’re either a sole trader or a business partner
Can transferring shares to a spouse have tax benefits?
Transferring shares to a spouse or civil partner may allow business owners to maximise a shared BADR lifetime limit and annual CGT exemption.
The annual UK CGT allowance is currently £3,000 for individuals, which can give business owners £6,000 tax-free if their allowance is combined with a spouse.
Moving a portion of a shareholding to your partner prior to a sale can also help reduce a tax bill through greater BADR, though there is an important caveat to consider.
As with the business owner, your partner must also meet the conditions for BADR in their own right for at least two years before a business is sold.
They must hold at least five per cent of shares and voting rights within a company, while also being an officer or employee at your company.
As a result, using this strategy requires careful planning well in advance to secure the relief.
Any share gifts made must also be unconditional, meaning your spouse fully owns the shares and personally benefits from them.
How can you structure a deal tax-efficiently?
The structure of a business sale can have significant impacts on the overall tax liability.
One method of sale involves a buyer purchasing shares in the company itself, while the company continues to own the assets, contracts and liabilities.
In contrast, an asset sale is a buyer purchasing specific assets from a company, including equipment and stock, alongside intangible business assets.
With an asset sale, the ownership of the company is not acquired.
Generally, sellers prefer a share sale over an asset sale, as this approach is often more tax efficient and can offer a cleaner exit for a seller.
In a share sale, the seller receives the purchase price in exchange for their shares and will typically only be subject to CGT, with a reduced rate available with BADR.
In an asset sale, assets will often be subject to corporation tax and then a shareholder tax, if proceeds are distributed to shareholders, resulting in a potential double taxation during a sale.
As the structure of a sale can have as much impact as the headline purchase price, it is important for business owners to understand the distinctions.
How can a sale be carefully timed?
Timing the sale of a business can minimise unnecessary tax and allow you to take advantage of tax allowances.
For optimal results, a business sale should be planned for at least two years before ownership is officially exchanged, allowing you to meet the conditions of BADR.
Considering CGT, a sale commonly takes place when an unconditional contract is exchanged and not when the deal is finalised. This can decide which tax year the sale falls under.
For instance, completing a sale shortly after the start of a new tax year can delay the tax bill by almost a year and allow you to make use of that tax year’s annual CGT exemption.
Similarly, you may want to time your sale during a year when income is lower, which can potentially lower tax liabilities.
As BADR rates and relief allowances are prone to fluctuation, you should monitor changes in preparation for selling your business.
While planning around a favourable Autumn Budget can help to reduce tax, rushing into a sale to offset a rate change is rarely better than a planned, careful sale.
Speak to an accountant
Taking advantage of planning opportunities can have a significant impact on the overall value you retain from a sale and the total tax bill, provided plans are put in place early.
Our accountants are equipped to assess your eligibility for BADR, help structure the sale efficiently and identify opportunities available to decrease your tax liability.
We can help transfer shares cost-effectively and time disposals to ensure you make the most of your own and your spouse’s tax-free allowances.
To ensure your exit is tax-efficient and without last-minute stress, you should reach out to an accountant at an early stage.
We can help you to avoid costly mistakes while keeping your opportunities open.
Considering selling your business? Speak to our specialists for early guidance on achieving a tax-efficient business exit.