If you are thinking about selling up, the headline price is only half the story. The other half is what you keep after HMRC takes its share. Understanding tax liabilities when selling your business – and planning for them early – can lift your net proceeds, avoid last‑minute stress and put you in a stronger negotiating position.
The 2025/26 tax year brings a lower capital gains tax (CGT) allowance, higher CGT rates for many owners and continued scrutiny of reliefs. Yet buyers are still active: the Office for National Statistics recorded 179 completed inward M&A deals in the third quarter of 2024 alone (ONS, 2024). That backdrop makes it more important than ever to have a clear, evidence‑based tax plan before you sign heads of terms.
Why preparation beats reaction
A business sale moves through due diligence, negotiation and legal completion at pace. If tax planning waits until after the offer letter arrives, options disappear. Early modelling lets you:
- find the best share-asset split
- decide whether to sell in stages
- forecast personal cashflow needs
- flag any pre‑sale restructuring
Starting at least 12-18 months out also gives time to tidy accounts, repay director loans and settle open HMRC queries – all red flags for buyers that can knock price or stall completion.
Valuing the business: more science than art
Valuation drives both bargaining power and tax. Recent SME transactions show earnings multiples edging up – UK mid‑market deals averaged 5.4x EBITDA in 2024, up from 5.0x the previous year. A realistic valuation grounded in comparable deals, forecast cashflows and normalised working capital helps:
- justify a share sale (often preferable for owners)
- evidence price to HMRC if an enquiry follows
- avoid arguments over earn‑outs
External advisers can prepare a short form valuation report to share with potential buyers and your accountant, keeping everyone on the same page.
Capital Gains Tax rules for 2025/26
For disposals on or after 6 April 2025:
- Annual exempt amount: frozen at £3,000 per individual. Gains above this are taxed.
- Rates: 18% for basic‑rate band taxpayers, 24% for higher and additional rate (28% and 24% respectively for residential property).
- Trusts enjoy only half the annual exemption (£1,500).
Because CGT is progressive, spreading completion payments over more than one tax year, or between spouses, can reduce the top slice that falls into the higher rate.
Using Business Asset Disposal Relief
Business Asset Disposal Relief (BADR) can reduce CGT to 10% on lifetime gains of up to £1 million. To qualify, you must usually:
- have owned the shares for at least two years
- be an employee or officer of the company during that period
- hold at least 5% of the ordinary share capital and voting rights
Watch for management incentive schemes that dilute your holding below 5% before completion. Where the lifetime limit is nearly used, consider splitting ownership with a spouse who also meets the tests.
Managing tax liabilities when selling your business
Bringing the threads together, a structured plan can trim the eventual CGT bill:
- Share or asset sale? Buyers often prefer assets to sidestep historic liabilities. That can push the seller into corporation tax on chargeable gains inside the company and a second layer of tax on winding‑up. A share sale is usually cleaner – but back‑up calculations are vital.
- Earn‑outs and deferred consideration: HMRC taxes these when they become payable. Negotiating a cap, floor or loan‑notes structure can defer the point of charge and spread gains across multiple years.
- Use of losses: Bring forward capital or trading losses can be offset against gains, but only if the company still carries on the same trade. Document any changes before marketing the business.
- Pension contributions: A final company pension payment tops up retirement savings and reduces corporation tax, indirectly lowering CGT by decreasing the company’s retained profits.
- Gifting shares to a spouse: Transfers between spouses are no‑gain/no‑loss, allowing two annual exemptions and potentially two BADR limits.
Timing the sale
Selling just before the company’s year‑end can unlock a larger distributable profit figure, helping you justify the price. From a personal tax angle, completion after 6 April gives twelve months’ grace before the self assessment CGT payment deadline (31 January 2027 for 2025/26 gains). For larger deals where proceeds arrive in tranches, aligning payments with tax dates preserves cashflow.
Political risk also matters. HMRC estimates that 264,000 individuals will pay higher CGT after the rate rises introduced in October 2024. To avoid being caught out, keep an eye on the next Budget and any manifesto commitments.
Record keeping, due diligence and HMRC compliance
Reliable records speed up due diligence, defend your valuation and satisfy HMRC if the return is queried. Keep:
- signed board minutes approving the sale
- share registers and option agreements
- calculations of base cost, enhancement expenditure and indexation (for corporate sellers)
HMRC can request supporting evidence up to one year after the filing deadline – longer if an enquiry opens. Digital files backed up to secure cloud storage make life easier.
Summing up
Selling a company is as much about strategy as it is about finding a buyer. A clear plan – built months, not weeks, before you go to market—lets you shape the deal in your favour, protect Business Asset Disposal Relief and decide whether a share sale, asset sale or phased earn‑out will leave you better off. By stress‑testing valuations, checking the £3,000 CGT allowance and modelling how each tranche of consideration lands against the tax bands for 2025/26, you turn HMRC’s rules into a set of levers you can control rather than hurdles you must stumble over.
Good records, watertight due diligence answers and an evidence‑based valuation do more than satisfy a buyer: they speed up legal completion and lower the chance of a post‑sale HMRC enquiry. Add in timely pension funding, loss planning and spousal exemptions, and you can lift your net proceeds without inflating the headline price.
Talk to us about tax liabilities when selling your business and keep more of what you have built. Contact our team to start the conversation.