Selling Your Business: Tax Planning Before You Exit
If you are considering selling your business, it’s important to start planning well in advance. A business disposal can trigger a capital gains tax (CGT) liability, and careful planning may help reduce the tax you ultimately pay.
Creating an outline exit plan early allows you to review potential tax reliefs, structure the sale efficiently, and maximise the value you receive from the transaction.
Capital Gains Tax on the Sale of a Business
When you sell a successful trading business or shares in a trading company, any profit made on the sale will usually be treated as a capital gain.
Capital Gains Tax will normally apply after deducting the annual exempt amount, which is currently:
£3,000 per person per tax year
This allowance has been significantly reduced in recent years, meaning more gains may now be subject to tax.
For most business disposals, the standard CGT rate is typically 20% for higher-rate taxpayers.
Business Asset Disposal Relief (BADR)
In some cases, you may be able to reduce the tax rate on the sale of your business by claiming Business Asset Disposal Relief (BADR).
This relief applies when certain conditions are met, such as:
- You have owned the business for at least two years
- The business is a trading business
- You are a sole trader, partner, or qualifying shareholder in a personal company
If the conditions are satisfied, the tax rate is reduced to:
- 14% for disposals made on or after 6 April 2025
- 18% for disposals on or after 6 April 2026
The relief applies to qualifying gains up to a lifetime limit of £1 million.
If you have previously claimed Entrepreneurs’ Relief (the former name for BADR), those gains will count towards your £1 million lifetime limit.
Planning Ahead for a Business Sale
Advance planning can make a significant difference to the amount of tax payable on a disposal.
Areas to review include:
- Whether you qualify for Business Asset Disposal Relief
- How much of your lifetime BADR limit remains
- Whether a share sale or asset sale would be more tax efficient
- Timing the disposal to maximise available allowances
Taking advice early can help ensure that your business sale is structured in the most tax-efficient way.
Speak to Us Before Selling Your Business
If you are considering selling your business or shares in your company, it is important to review your tax position before proceeding.
At Merranti Accounting, we can help you:
- Estimate the capital gains tax payable on a sale
- Confirm whether Business Asset Disposal Relief is available
- Plan the timing and structure of your exit
- Ensure the transaction is tax-efficient and compliant
Early planning can significantly reduce the tax burden when you exit your business.
If you would like to discuss your plans, please contact our team for advice.
