After a lifetime of grind, retirement seems particularly sweet when it’s a business which was built from the ‘ground up’ – all that effort and the risks taken.
With regard to the relevant taxes, it is primarily capital gains tax (CGT) which needs consideration when a business is being sold. A business is generally free from inheritance tax (IHT) by virtue of business property relief (BPR), although from April 2026 only £1m of value can benefit from 100% relief, the excess benefiting from a rate of 50%. Once the business is sold, BPR will not apply to the cash proceeds, so that would also need to be considered.
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Selling to a Third Party
One way to realise the fruits of one’s labour is to sell the business as a going concern to a third party in return for cash; in that instance, the business or shares are sold and the profits (often the bulk of the proceeds) are subject to CGT. Whilst the ordinary rates of CGT are 18% or 24%, (or possibly a combination), the sale of a trading business or shares of a trading company (of which the owner is also a director) will attract a rate of 14% (for 2025/26) thanks to business asset disposal relief (BADR). The same tax treatment would apply if a company were formally liquidated, rather than sold as a going concern.
If the consideration for the sale is in the form of shares in the buyer, the CGT is essentially rolled over, with the new shares standing in the shoes of the old ones – unless an option is made to treat the swap as chargeable to utilise BADR. If possible, make the most of BADR before the rate is increased to 18% in April 2026!
Sale to Employees
It may be that a particular employee, or group of employees, can be trusted to take the helm from the owner. From a CGT perspective, the consequences are the same as per a third-party sale, though the consideration will usually be in cash; a business owner might sell the business to a company formed by the purchasing employees – the seller might accept some shares in that company.
Employee-Ownership Trust
If a direct sale to an employee or an employee company is a non-starter, it might be that the employees as a whole could buy the shares via an employee-ownership trust – a John Lewis-type model whereby a trust owns (at least) a controlling stake of the company on behalf of the employees.
If more stringent post-April 2025 criteria are met, the sale of the company shares to the trustees is treated as ‘no-gain, no-loss’ disposals – hugely beneficial to the owner, but also these trusts can provide for the longevity of the business and jobs.
Instalments
If the consideration for the business sale is in cash instalments, the CGT position will depend on whether an ascertainable total figure has been agreed for the business sale; if the consideration is ascertainable, that total is taxed upfront irrespective of when it is actually received. With HMRC’s agreement, proceeds received in instalments can also be taxed in instalments until the CGT bill is paid.
If the consideration is unascertainable, an earn-out is being received and that is taxed upfront; once the earn-out is crystallised, there is a subsequent disposal and CGT is charged (without the benefit of BADR) again on the consideration received, less the earn-out’s initial value.
Company Purchase of Own Shares
It might be that if there’s no one else to whom one’s shares can be sold, the company can purchase its own shares from the vendor; there would need to be some other existing shareholders, as any purchased shares are cancelled.
The default position is that the consideration for those shares would be subject to income tax, but with HMRC’s acceptance, the purchase of trading company shares can be treated as a capital disposal if it’s for the benefit of the trade.
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Get in touch with our skilled professionals for expert UK tax and accounting solutions specialised to minimise your tax burden and resolve your financial challenges efficiently.
Practical Tip
When considering selling up, it’s important for a business owner to consider how the sale is structured, to whom it is being sold and how the consideration is relieved, as it might affect the CGT. However, it must also be borne in mind that when the business is sold, an asset which currently attracts some IHT relief is being swapped for cash, which will attract no relief.
