Planning a Business Sale: What to Do in the Years Before You Sell

Quick answer: On a share sale you pay capital gains tax at 18% or 24% for 2026/27, and Business Asset Disposal Relief (BADR) taxes the first £1m of qualifying lifetime gains at 18%. The conditions run for two years before the sale, so planning should start two to three years ahead. How the price is paid, and how the company looks on the day, matter as much as the headline number.

What you keep depends on more than the price

Two sellers can receive the same price and keep very different amounts. The difference comes from:

• whether BADR applies, and whether its conditions were protected;
• how the price is paid: cash, earn-out, deferred consideration, loan notes or shares;
• how the company looks on the day, including surplus cash and non-trading assets;
• what you promise in the tax warranties and indemnities;
• who owns the shares, and where the proceeds end up.

The tax on a share sale

For 2026/27 capital gains tax is 18% within the basic rate band and 24% above it, after a £3,000 annual exempt amount. BADR taxes the first £1m of qualifying gains in your lifetime at 18%, from 6 April 2026. That saves up to £60,000 compared with the 24% rate.

For a share sale, throughout the two years before the sale:

• the company must be a trading company, or the holding company of a trading group;
• you must be an officer or employee; and
• you must hold at least 5% of the ordinary shares, with at least 5% of the votes and 5% economic entitlement.

EMI shares are exempt from the 5% test, but the option must have been granted at least two years before the sale. Resigning as a director early is a common and costly mistake. The claim deadline is the first anniversary of 31 January after the end of the tax year of the sale, so 31 January 2029 for a 2026/27 sale. Our article on BADR goes into more detail.

Example: You sell your company for £3m, having started it for £100, and you qualify for BADR with no other gains. Ignoring the annual exempt amount and assuming the rest of the gain falls at 24%, £1m of the gain is taxed at 18% (£180,000) and the remaining £2m at 24% (£480,000), a total of about £660,000. Had a BADR condition been missed, the whole gain could be taxed at 24%, about £720,000, an extra £60,000. The figures are hypothetical.

Share sale or asset sale?

The first structural question is what is being sold: the shares in your company, or the business and assets inside it.

On a share sale, you sell your shares. The tax falls on you, as capital gains tax, and there is only one layer of tax. The buyer takes the company with all its history, including its tax history.

On an asset sale, the company sells its trade and assets, such as goodwill, equipment, stock and property. The company pays corporation tax on the gains. You then still have to get the money out, by dividend or on a liquidation, and that is taxed again in your hands.

Buyers often prefer assets, because they can leave unwanted liabilities behind and may get tax allowances on what they buy. Sellers usually prefer shares. Price and structure are often negotiated against each other, so know your numbers before you accept an asset sale.

Example: Your company sells its trade and assets and makes a taxable gain of £1,000,000. Corporation tax at 25% is £250,000. You then receive the remaining £750,000 on a liquidation, taxed at 18% under BADR: £135,000. You keep £615,000. On a share sale with the same £1,000,000 gain, BADR at 18% gives tax of £180,000, and you keep £820,000. The figures are round and hypothetical, and ignore the annual exempt amount and costs.

When the sale happens

For capital gains tax, the date of disposal is usually the date the contract becomes unconditional, not the date you are paid or the date of completion. The tax on a share sale is then due by 31 January after the end of that tax year. So a contract that becomes unconditional just after 5 April, rather than just before, gives you a year longer before the tax is due. The commercial timetable comes first, but it is worth knowing which side of 5 April you are on.

Earn-outs and deferred consideration

Structure matters as much as the headline number.

An earn-out tied to your continuing employment can be taxed as employment income at income tax rates, not as a capital gain. The wording of the contract decides this, so have it reviewed before signing. Our article on how earn-outs, loan notes and deferred payments are taxed covers it fully.

If deferred payments run for more than 18 months, you can sometimes pay the tax by instalments, ending by the earlier of the last payment and eight years after the normal due date. HMRC normally expects 50% of each instalment of the price to go towards the tax.

Using a holding company: SSE

If a holding company sells a subsidiary, the substantial shareholding exemption (SSE) can remove the corporation tax on the gain. The seller must have held at least 10% for a continuous 12 months within the six years before the sale, and the company sold must be a trading company or the holding company of a trading group. The cash then sits in the holding company, where you can invest it or extract it in stages.

SSE is not automatically better than selling personally. The proceeds stay inside the holding company, and extracting them is a separate taxable event. Selling personally may attract BADR instead. Which route wins depends on whether you want the money in your hand or working inside the group, and it should be modelled before you restructure. A holding company put in at the last minute may not be effective, so see our holding company page and our article on the substantial shareholding exemption.

What to do in the years before a sale

Good planning is usually quiet and early. Typical steps include:

1. Check relief conditions for every shareholder, including family members.
2. Tidy the company. Move out surplus cash, investment property and other non-trading assets so the buyer pays for the trade and your trading status is clear. A demerger can help.
3. Put a holding company in place where appropriate.
4. Review share ownership and rights, including shares held by family or in trust. A gift to a spouse can use two sets of allowances. Gifts must be real, unconditional and made well before a deal is in sight.
5. Plan your own position, including residence, pensions and dividends. Dividends in 2026/27 are taxed at 10.75%, 35.75% or 39.35% above a £500 allowance, so comparing them with capital gains tax is a real choice.
6. Plan inheritance tax. Business Relief can make shares in a trading company free of inheritance tax, up to 100% on the first £2.5m of qualifying property per person from 6 April 2026. Once you sign a binding contract to sell for cash, the relief is usually lost.

Planning later than about six months before a sale leaves fewer options, and some structures are challenged if they look as though they were created for the sale.

Your own goals shape the structure too. Some owners want the proceeds for personal use, and others want to reinvest in their next venture. That choice changes whether a personal sale with BADR or a sale through a holding company makes more sense, so settle it at the start.

A case from our work: demerging before the sale of a trade

A family-owned business was selling its trade to a third-party buyer. The owners wanted to keep certain assets, including property, that the buyer did not want and that did not belong in the sale. The existing structure did not fit the deal.

We demerged those assets out before the sale, so the owners kept them and the buyer was offered a clean trading business. We obtained the HMRC clearances first, and our lawyers drafted the documents while discussions on the sale itself began. A full demerger can take up to four months once everything is considered, which is why the work started well before the sale. Had it started after heads of terms, the options would have been far narrower.

HMRC clearances and warranties

A statutory clearance asks HMRC to confirm in advance that a step will not be challenged under an anti-avoidance rule. The main ones are section 138 for share exchanges, section 701 for transactions in securities and section 1044 for a company's purchase of its own shares. HMRC must respond within 30 days of a complete application. A clearance removes a risk. It does not guarantee a good tax result.

The buyer will also ask you to stand behind the company's tax affairs. Warranties and indemnities can make you personally liable for problems that surface after completion, with claim periods commonly of four to seven years. Aim to negotiate limits on time and amount, carve-outs for known matters and a fair process for HMRC enquiries.

After the sale

Plan where the money goes before the sale, not after it.

• Inheritance tax. Shares in a trading company can qualify for Business Relief. Cash in the bank does not. Selling turns a relieved asset into one that is fully exposed at 40%, so plan for this before you sign.
• Reinvesting. If you reinvest a gain in EIS shares, between one year before and three years after the sale, the capital gains tax can be deferred. It is postponed, not cancelled, and EIS investments carry real risk.
• A Family Investment Company. Some owners put part of the proceeds into a Family Investment Company (FIC) to invest for the long term and bring the next generation in. How it is funded matters for inheritance tax, so it needs modelling first.
• Passing shares to family first. Shares in a trading company can sometimes be given to family members before a sale, with gift holdover relief deferring the gain. The gift must be real, unconditional and made well before a deal is in sight, and the recipient then sells with their own tax position.

Common mistakes

• Resigning as a director before the two-year BADR period ends.
• Agreeing an earn-out tied to employment without understanding the tax.
• Leaving it too late to restructure.
• Giving broad, long warranties.
• Forgetting that the date of an unconditional contract is usually the date of disposal for capital gains tax.
• Overlooking inheritance tax and where the proceeds will go.

For the service overview, see Selling a Business.

Talk to us about Corporate Restructuring

• Most restructures can be tax-neutral if the conditions are met
• A main purpose test now applies to share exchanges and reconstructions
• HMRC clearance gives certainty before you commit

See how we help or book a free 20-minute call.

FAQs

How far ahead should I get my tax position checked?

As early as you can, ideally two to three years ahead. Relief conditions run for two years, so a holding company or share restructure done in the last six months may not be effective. Removing surplus cash and non-trading assets, tidying shareholdings and setting the right roles all take time.

Will I get BADR when a buyer acquires my shares?

Only if every condition was met throughout the two years before the sale. The company must be trading, you must be an officer or employee, and you must hold at least 5% of the ordinary shares with the matching votes and economic rights. Missing one condition means the 18% rate is not available.

How is an earn-out taxed?

For a cash earn-out of an uncertain amount, the right to the payment is valued at completion and taxed as part of the gain then. Later payments are compared with that value. If the earn-out is linked to you continuing to work, it can be taxed as employment income instead.

Is deferred consideration taxed when I sell or when I am paid?

Fixed deferred consideration is normally part of your proceeds in the year of sale, even though you have not been paid. If payments run for more than 18 months, you may be able to pay the tax by instalments. Plan the cash flow of the tax at the outset.

What happens to my inheritance tax position when I sell?

Business Relief can make qualifying trading company shares free of inheritance tax. Once you sign a binding contract to sell for cash, the relief is usually lost, and the cash is exposed to 40%. Planning for this before the sale is far more effective than after.

Next step

If you are thinking of selling, or have an offer, we can tell you what to look at first and what could go wrong. We offer a free 20-minute call. Book a call.