What are the tax planning opportunities available before you sell a business?

When it comes to selling your business, planning your tax strategy can substantially reduce your overall liability.

Selling a business is often the most significant milestone in the journey of a founder, but it can be one of the most complicated.

By understanding the tax implications, you can ensure a sale of your business retains as much of the hard-earned value as possible.

Business Asset Disposal Relief

Business Asset Disposal Relief (BADR), formerly known as Entrepreneur’s Relief, can reduce the Capital Gains Tax (CGT) when selling qualifying assets or shares.

The rate of BADR has changed twice in two years, with the rate increasing from 10 per cent to 14 per cent from April 2025 and to 18 per cent from April 2026.

Any gains above the lifetime cumulative limit of £1 million are taxed at the standard CGT rate, currently sitting at 24 per cent for higher and additional rate taxpayers.

As the rate of tax has increased and the lifetime limit has lowered from £10 million to £1 million, effective tax planning is needed to do some of the work 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

Transfer shares to a spouse

By transferring shares to a spouse or civil partner, business owners may be able 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.

While moving a part of a shareholding to your partner before a sale can reduce a tax bill through greater BADR, there is an important caveat to consider.

For your partner to qualify for BADR, a spouse must meet the relief conditions within their own right for at least two years before a business is sold.

They must hold at least 5 per cent of shares and voting rights within a company, while also being an officer or employee at your company.

Consequently, to successfully secure the relief, a sale needs to be carefully planned well in advance.

Any share gifts made must also be unconditional, meaning your spouse fully owns the shares and benefits from them.

Structure the deal tax-efficiently

How the sale of a business is structured can have substantial impacts on the overall tax liability.

A share sale involves the buyer purchasing the shares in the company itself, while the company continues to own the assets, contracts and liabilities.

On the other hand, an asset sale involves 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.

For the most part, sellers opt for a share sale over an asset sale, as this approach can work out to be more tax-efficient, while allowing for a cleaner exit for the 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.

For a share sale, assets will often be subject to corporation tax and then a shareholder tax, if proceeds are distributed to shareholders, resulting in double taxation during a sale.

It is important for sellers to understand that how they structure their sale can have as much impact as the headline business price.

Time the sale carefully

By timing the sale of your business, you can minimise unnecessary tax and take advantage of tax allowances.

Ideally, a business sale should be in the works for at least two years before ownership is exchanged, allowing you to meet the conditions of BADR.

In terms of CGT, a sale typically takes place when an unconditional contract is exchanged and not when the deal is finalised, which can decide which tax year the sale falls under.

For example, selling a business 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, timing a sale during a year when income is lower may also mean liabilities are reduced.

As BADR rates and relief allowances have altered a lot over recent years, you should keep an eye out for changes when deciding to sell.

Planning around a favourable Autumn Budget can help to reduce tax, but rushing into a sale to offset a rate change is rarely better than a planned, careful sale.

Speak to an accountant

Making the most of planning opportunities can have a significant impact on the overall value you retain from a sale and the total tax bill.

Our accountants can assess your eligibility for BADR, help to structure the sale efficiently and identify any opportunities to decrease your tax liability.

We can help transfer shares 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 stress-free, you should engage an accountant at an early stage, helping you to avoid costly mistakes and keep your opportunities open.

Thinking about selling your business? Speak to our accountants early for guidance on a tax-efficient business sale.