What Tax Do You Pay When You Sell a Business in the UK?

Last Updated on: 5th September 2025, 11:47 am

Have you ever wondered what tax you pay when you sell a business in the UK? Whether you’re planning your exit strategy or responding to an unexpected opportunity, understanding the tax implications is crucial.

Selling a business isn’t just about shaking hands and collecting a cheque, it’s a process that can come with significant tax consequences if you’re not prepared.

From Capital Gains Tax to Entrepreneurs’ Relief, the UK tax landscape for business sales is complex but navigable with the right information. In this guide, we’ll break down everything you need to know to stay compliant and maximise your profits when selling your business in the UK.

What Are the Main Taxes Involved When Selling a Business?

When you sell a business, the taxes involved depend on how your business is structured and what part of it is being sold. In general, the two primary taxes to be aware of are Capital Gains Tax (CGT) and Corporation Tax.

These taxes apply differently to sole traders, partnerships, and limited companies. Understanding how each tax operates is essential to calculating how much you’ll owe after the sale.

If you are a sole trader or in a business partnership, you will typically pay Capital Gains Tax on the profit you make from selling all or part of your business.

This includes tangible and intangible business assets like property, machinery, goodwill, or trademarks. The profit is calculated by subtracting the original purchase price (plus allowable costs) from the sale price.

For limited companies, the tax picture is more complex. The company itself may be liable to pay Corporation Tax on any capital gains realised from selling business assets. If you, as a shareholder, sell your shares in the company, you may need to pay Capital Gains Tax personally on the proceeds.

Here are some examples of what is considered a business asset:

• Land or buildings used by the business
• Equipment, plant or machinery
• Shares in a company
• Registered trademarks or patents
• Goodwill or business reputation

In addition to these taxes, your total tax liability can vary depending on the reliefs available to you. Proper tax planning can help reduce the final bill, but it is important to know what applies in your situation. Ignoring this step can lead to unexpected financial consequences, so it’s best to prepare early.

Do You Pay Capital Gains Tax on a Business Sale?

Yes, in most cases, you will need to pay Capital Gains Tax (CGT) when selling your business or its assets. CGT is applied to the profit you make from the sale, not the total amount received. The way this profit is taxed varies depending on your overall income and the current CGT rates set by the government.

As of the latest update, the CGT rate is:

• 18% for basic rate taxpayers
• 24% for higher or additional rate taxpayers

For instance, if you bought your business for £150,000 and sold it for £400,000, your taxable gain would be £250,000. The CGT would apply to that £250,000, not the full £400,000. Your income level will determine whether the gain is taxed at 18% or 24%.

In addition, you are entitled to a CGT allowance, which is the amount of gains you can earn tax-free each year. In the 2025/26 tax year, this allowance is £3,000. Anything over that is subject to CGT.

Here are key points to remember:

• CGT is not paid by the business but by you as the individual seller
• The CGT rate is influenced by your personal income tax bracket
• Only the profit portion of the sale is taxed
• Costs associated with improving or selling the business can be deducted

If you gifted part of your business or sold it at undervalue to help someone else, you might still be liable for CGT. In such cases, the market value is used to calculate your gain, not the sale price.

Understanding when and how CGT applies helps you avoid surprises and plan for what you will actually keep after the sale is completed. Professional tax advice is often invaluable at this stage.

How Does Business Asset Disposal Relief Affect the Tax You Pay?

One of the most effective ways to reduce your Capital Gains Tax is through Business Asset Disposal Relief. Previously known as Entrepreneurs’ Relief, this scheme allows eligible business owners to pay a reduced CGT rate when selling qualifying assets or shares.

If you qualify, the CGT rate is reduced from 18% or 24% to 10%. This lower rate applies to gains up to a lifetime limit of £1 million, making it a significant tax-saving opportunity. From 6 April 2025, the rate is expected to rise to 14%, and then 18% from April 2026. These changes make it more important than ever to plan your sale carefully.

To be eligible for this relief, the following must apply for at least two years before the sale:

• You are a sole trader, business partner, or company director
• You have owned the business or the shares in a company for at least two years

The assets you sell must be associated with your trading business, and not investment assets. If you meet these criteria, the relief can be claimed when filing your Self Assessment tax return. The deadline to claim it is 31 January in the tax year after the sale.

You can calculate your CGT with this relief as follows:

• Add up the gain on the qualifying assets
• Subtract your CGT annual exemption
• Pay 10% on the remaining amount

This relief is particularly helpful for those looking to retire or exit their business in a tax-efficient way. However, it is important to track your qualifying gains as they count toward your lifetime limit.

If your gains exceed the limit, the amount above it is taxed at the standard CGT rates. Make sure you fully understand your eligibility to avoid missing out on this opportunity.

What If You’re Selling Shares or Business Assets Separately?

Selling a business is not always about transferring the entire entity. Sometimes, you may decide to sell specific shares or assets instead. Each method has different tax implications, so understanding these differences is vital when structuring your sale.

If you are selling shares in your company, the transaction may qualify for Business Asset Disposal Relief. This is especially relevant for limited company owners who are also directors and hold at least 5% of the shares and voting rights. In this case, you may be able to pay CGT at 10%, depending on your eligibility.

When selling business assets such as property, equipment, or trademarks, the profits from each item are assessed separately. This means you must work out your gain for each asset and determine which reliefs apply.

It’s important to distinguish between:

• Tangible assets like buildings or machinery
• Intangible assets like goodwill or intellectual property

You must also be aware that the method of sale can affect your tax position.

For example:

• Asset sale involves selling individual components of the business
• Share sale involves selling the entire company ownership

Here are some key differences in tax treatment:

• An asset sale might attract Corporation Tax if owned by a company
• A share sale could lead to Capital Gains Tax for individual shareholders
• Share sales may allow you to retain some liability or influence in the company

Each route has pros and cons, depending on your long-term goals and tax planning strategy. Seeking advice early can help you choose the most efficient path.

When Do You Pay Corporation Tax Instead?

Corporation Tax applies when a limited company makes a profit from selling business assets, such as property, machinery, or shares in other companies. Unlike CGT, which is paid by individuals, Corporation Tax is paid by companies on their chargeable gains.

The Corporation Tax rates depend on your company’s annual profit:

• 19% for profits under £50,000
• 26.5% for profits between £50,000 and £250,000
• 25% for profits over £250,000

Let’s say your company sells an office building that has appreciated in value. The difference between the purchase price and sale price is a capital gain and will be included in your taxable profit for Corporation Tax.

Here’s how to calculate it:

• Work out the asset’s original cost
• Deduct allowable expenses and improvement costs
• Determine the sale price and calculate the gain
• Apply the Corporation Tax rate based on profit levels

If you’re selling the entire business, including its assets, Corporation Tax applies to the company’s gain, and Capital Gains Tax may also apply to the shareholders selling their shares.

That means there can be two levels of tax:

1. The company pays Corporation Tax on its gains
2. You, as the shareholder, pay CGT when you withdraw the profits

To reduce your Corporation Tax liability, consider:

• Claiming reliefs for reinvestment (like Rollover Relief)
• Timing the sale to occur in a lower-profit year
• Maximising deductible expenses related to the asset

Understanding Corporation Tax is vital when planning your business sale, especially if you’re dealing with high-value assets or planning a full exit.

Are There Other Tax Reliefs You Might Qualify For?

While Business Asset Disposal Relief is the most common tax break used when selling a business, it’s not the only one. Depending on how your business is structured and how the sale is handled, you could qualify for several other reliefs that reduce or defer your Capital Gains Tax. Knowing about these reliefs could help you save significantly.

Here are the key reliefs you should be aware of:

1. Rollover Relief

This allows you to delay paying Capital Gains Tax when you sell certain business assets and reinvest the proceeds in similar assets.

To qualify:

• The new asset must be bought within 3 years of the sale.
• Both the old and new assets must be used in your business.

For example, if you sell a company vehicle and replace it with another, your CGT can be rolled over and postponed until the new asset is sold.

2. Gift Hold-Over Relief

If you’re giving your business or its assets to someone else rather than selling them, this relief lets you transfer the tax liability to the recipient. You don’t pay Capital Gains Tax now, instead, the person you gift it to pays CGT when they eventually sell it.

This relief is useful in:

• Passing the business to children or relatives
• Transferring assets during retirement or restructuring

3. Incorporation Relief

This applies if you transfer your sole trader business into a limited company. The gain on the business transfer is not immediately taxed as long as you receive shares in the company in return.

To qualify:

• You must transfer the whole business (excluding cash)
• You must receive shares equal in value to the business

These reliefs are powerful tools, but their application can be complex.

It’s critical to:

• Keep records of asset values and sale conditions
• Ensure the timing and structuring of the transaction meet HMRC criteria
• Get professional advice to fully benefit from them

Ignoring these reliefs can lead to unnecessary tax payments. Take the time to see if you qualify and plan accordingly.

How Can You Reduce the Tax When Selling a Business?

Reducing your tax bill legally when selling a business requires careful planning, the right timing, and taking full advantage of available tax reliefs. The earlier you start planning, the better your chances of minimising your liability and keeping more of your profit.

Here are practical ways to reduce tax:

• Use Business Asset Disposal Relief: This reduces your Capital Gains Tax rate to 10% if you qualify. Make sure you meet the 2-year ownership and employment conditions.
• Structure the Sale Strategically: In some cases, an asset sale may be more tax-efficient than a share sale, or vice versa. Evaluate both options based on your business structure.
• Offset Gains with Allowances: Make full use of your Capital Gains Tax allowance, which is £3,000 for 2025/26. If you’re married or in a civil partnership, consider splitting ownership to use both allowances.
• Time the Sale Wisely: Plan your sale in a year when your income is lower, so your overall tax rate is reduced. This can bring you into the basic rate bracket for CGT.
• Claim Rollover or Hold-Over Reliefs: If reinvesting or gifting, you may be able to delay or shift the tax burden, as explained in the previous section.
• Maximise Deductions: Don’t forget to deduct allowable costs like legal fees, advertising, and improvements to business assets. These reduce your taxable gain.

Working with a qualified accountant can uncover opportunities you might miss on your own. Professional advice often results in long-term tax savings that far outweigh the initial cost of the service.

The right strategy varies for each seller. Your decision should be guided by the type of sale, business structure, personal income, and future goals.

What Are the Costs Associated with Selling a Business?

Selling your business is not just about paying tax. There are other transaction costs involved, which can affect your final profit. These costs include fees for legal services, accountancy, brokers, and administrative tasks. Being aware of them upfront will help you budget more effectively.

Here’s a breakdown of common costs when selling a business:

1. Legal Fees

You will need a solicitor to help with contracts, transfer of assets or shares, and due diligence.

Legal fees can vary, but typically:

• Expect to pay at least 1% of the sale value
• More complex sales or disputes can increase costs

2. Accountancy Fees

An accountant is essential to:

• Value the business accurately
• Calculate your tax obligations
• Handle HMRC reporting

Fees can range from £2,000 to £5,000 or more, depending on the size and complexity of the business.

3. Broker or Agent Fees

If you use a business broker or M&A advisor, they may charge:

• Between 1% and 10% of the final sale price
• Flat rates or commission-based structures

This cost is often worth it if they secure a better deal or attract more buyers.

4. Administrative Costs

You may also incur smaller but necessary costs like:

• Licensing and permits
• Energy performance certificates
• Escrow or third-party services for holding funds

5. Employee-Related Costs

If you have staff, there may be costs related to:

• HR consultancy
• Redundancy payments
• Pensions or contractual obligations

It’s important to factor all these costs into your sale calculations. While the taxes might seem high, these professional services and legal requirements are equally important for a smooth, compliant transition.

Quick Comparison Table: Sole Trader vs Limited Company Tax Impact

Here is a simplified comparison of the tax implications of selling a business depending on your business structure:

This table highlights that limited company sales can trigger both Corporation Tax and Capital Gains Tax, while sole traders face only CGT, but with fewer structural options. Planning based on your business structure can significantly affect your after-tax proceeds, so choose your sale method wisely.

Conclusion

Selling a business is a significant milestone, but it comes with important tax responsibilities. Whether you’re a sole trader, in a partnership, or operating a limited company, the taxes you owe depend on how your sale is structured, what assets are involved, and which reliefs you can claim.

By understanding the rules around Capital Gains Tax, Corporation Tax, and available reliefs like Business Asset Disposal Relief, you can plan more effectively and avoid paying more than necessary.

It’s essential to factor in additional sale costs and to seek professional advice to navigate the complex landscape of business tax. With careful planning, you can make your business sale both financially rewarding and tax-efficient.

FAQs

What is the Capital Gains Tax allowance in the UK?

The Capital Gains Tax allowance in the UK for 2025/26 is £3,000, which means you can earn up to that amount in capital gains before paying tax. Anything above the threshold is subject to CGT at the applicable rate.

Can I avoid paying tax when selling my business?

You can’t avoid tax entirely, but you can reduce it legally using reliefs such as Business Asset Disposal Relief or Rollover Relief. Planning ahead with a tax advisor is the best strategy.

Do I pay more tax if I sell a business in parts?

Selling a business in parts may increase your tax if reliefs don’t apply to each asset. You must calculate CGT individually on each sale and claim relevant deductions.

How do I report the sale of my business to HMRC?

You need to declare the sale on your Self Assessment tax return. Include all details of the sale, gains, and reliefs claimed, and pay the tax by the deadline.

What’s the deadline for paying tax after a business sale?

The deadline for paying Capital Gains Tax is 31 January following the end of the tax year in which you sold the business. Delays can result in penalties and interest.

Can I gift my business and avoid Capital Gains Tax?

You may qualify for Gift Hold-Over Relief, which allows the recipient to take on the CGT liability. The tax is deferred until they sell the business in the future.

Does selling business property attract a different tax?

Business property is treated as an asset, and gains from its sale are subject to Capital Gains Tax or Corporation Tax depending on ownership. Reliefs may apply to reduce the tax.