Trade Sale, Private Equity, MBO or EOT: How Each Exit Route Is Taxed

If you are thinking about leaving your business, there is rarely one obvious route. Each buyer type pays differently, taxes you differently and leaves your business in different hands. This guide compares the four routes owners consider most often, so you can see what each one means in practice.

The four routes

• Trade sale. The business is sold to another company, often a competitor, supplier or customer.
• Private equity. An investment fund buys the business, usually alongside management, and sellers often keep a stake.
• Management buy-out (MBO). The people who run the business buy it, usually through a new company they set up.
• Employee Ownership Trust (EOT). A controlling interest is sold to a trust that holds the shares for all eligible employees.

How the sellers are taxed

Trade sale. Normally capital gains tax. Business Asset Disposal Relief can give an 18% rate on up to £1 million of lifetime qualifying gains for disposals from 6 April 2026, and gains above that are taxed at 18% or 24%. If part of the price is an earn-out tied to your staying in the business, it can instead be taxed as employment income.

Private equity. The cash element is taxed much like a trade sale. Buyers often ask sellers to reinvest part of the price in the new structure, and that rollover can defer tax on the reinvested part. The risk of employment income treatment on earn-outs and incentives tends to be higher, because sellers are normally expected to stay on.

MBO. Usually capital gains tax, with Business Asset Disposal Relief where its conditions are met. The key danger arises where the company funds its own purchase. HMRC can apply anti-avoidance rules that tax the proceeds as income. A clearance under section 701 ITA 2007 is commonly obtained, and where shares are exchanged a section 138 TCGA 1992 clearance is often sought as well.

EOT. For disposals from 26 November 2025, where the conditions are met, half of the gain on a sale of a controlling interest is relieved. The other half is taxed at the normal capital gains tax rates, which are 18% within the basic rate band and 24% above it. Business Asset Disposal Relief cannot be claimed on the same sale. Even so, an EOT sale can cost less tax than a trade sale, since only half the gain is taxed now: at most 24% of half the gain, or 12% of the whole. The relieved half is held over and comes into charge if the trustees later sell the shares. The rules are also tougher for sales from 30 October 2024, and relief can be clawed back if the conditions stop being met within a set period.

What you are paid, and when

A trade buyer may offer the highest price because it can benefit from merging the businesses. Much of the price is usually paid at completion, although earn-outs and deferred amounts are common.

A private equity price reflects the return the fund expects to make. Part of your value may sit in rollover equity that you can only turn into cash when the fund exits.

MBO and EOT prices are often paid over time from the company's future profits. That has consequences:

• You carry the risk that the business performs worse than expected.
• The payment plan has to be affordable, or it strains the business.
• For an EOT, the trustees must take reasonable steps to pay no more than market value.

Where a fixed price is paid later, the whole amount is normally taxed at completion. You may therefore pay tax before the cash has all arrived.

Control and continuity

In a trade sale, your business is usually absorbed into the buyer. The name, team and culture may change, and you may have little influence afterwards.

Private equity normally keeps the business standalone, but the fund holds significant control and plans to sell again within a few years.

An MBO hands the business to people you know and trust. It stays independent, although ownership moves to a small group.

An EOT keeps the business independent and owned on behalf of all eligible employees. Former owners can stay involved, but for sales from 30 October 2024 they and their connected persons cannot control the trust. Employees can receive qualifying bonuses of up to £3,600 a year free of income tax.

Speed and certainty

Trade and private equity sales usually involve a marketing process, detailed due diligence and negotiation. Terms can change late on, or the deal can collapse.

MBOs and EOTs skip the wide marketing process and the buyers already know the business, so they can be faster and more certain. They still need careful structuring, a supportable valuation and often HMRC clearances, which HMRC answers within 30 days of a complete application. Build that into the timetable.

The routes side by side

Which suits whom

• Trade sale: owners seeking the highest price and a clean break, comfortable with the business changing.
• Private equity: owners who want some value now, plan to stay involved and like the idea of a second exit.
• MBO: owners with a strong management team who want continuity and can accept being paid over time.
• EOT: owners who value independence and their employees' future, and want a tax-efficient exit at market value paid over time.

Where to start

• Decide what matters most: price, timing, tax or the future of the business.
• Check now whether you meet the Business Asset Disposal Relief or EOT conditions, and whether you will at the time of sale.
• Model your after-tax proceeds and the timing of payments for each route, not just the headline figure.
• Take advice on structure before heads of terms are signed, while you still have options.

Compare your options with our team

Seeing the numbers side by side usually settles the question. Our specialists can model each route for your business, and the advice is prepared by our specialist team and reviewed by a Chartered Tax Adviser. Book a call with our team to compare your options before you commit to a buyer.

This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.

For a closer look at selling or buying a business, see our specialist practice, Transaction Tax Partners.