When advising clients on corporate exits, you must definitively answer the core question: does selling a limited company have tax implications? The tax consequences dictate the transaction structure, and for the 2026/27 tax year, the legislative landscape has shifted dramatically. The Finance Act 2025 and Finance Act 2026 introduced substantial rate hikes for capital gains and overhauled the lifetime limits for key reliefs.
To calculate the exact tax exposure, you must first determine the nature of the disposal: is the client selling their shares in the company, or is the company selling its underlying trade and assets?
The Fundamental Divide: Share Sale vs. Asset Sale
The legal structure of the sale dictates which party suffers the primary tax charge.
1. The Share Sale (Shareholder Level)
When an individual shareholder sells their shares in a limited company, the disposal falls squarely within the Capital Gains Tax (CGT) regime. Section 1(1) of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) states that CGT is charged on chargeable gains accruing to a person on the disposal of assets. The profit realised by the individual shareholder is taxed personally.
2. The Asset Sale (Company Level)
If the buyer prefers to acquire the business’s goodwill, equipment, and customer lists directly, the limited company itself makes the disposal. Under section 4 of the Corporation Tax Act 2009 (CTA 2009), companies do not pay CGT. Instead, the company pays Corporation Tax on its chargeable gains and trading profits. The shareholders then face a secondary Income Tax or CGT charge when they extract the net proceeds from the company via dividends or liquidation.
Tax Implications for Individual Shareholders (2026/27)
When a client pursues a share sale, you must assess their gain against the 2026/27 CGT thresholds and relief provisions.
For the 2026/27 tax year, section 1K of TCGA 1992 provides an Annual Exempt Amount (AEA) of £3,000. If the client’s total gains for the year fall below this threshold, they pay no CGT. If the gains exceed £3,000, you must determine their applicable rate.
Standard CGT Rates
For non-residential assets, such as company shares that do not qualify for specific reliefs, the standard CGT rates apply based on the individual’s income tax band:
- Basic rate taxpayers: 18%.
- Higher and additional rate taxpayers: 24%.
Business Asset Disposal Relief (BADR)
If the client is an officer or employee of a trading company and has held at least 5% of the shares and voting rights for a continuous two-year period, they may claim Business Asset Disposal Relief (BADR).
Historically, BADR offered a highly favourable 10% rate. However, section 8 of the Finance Act 2025 legislated a phased increase. For disposals made on or after 6 April 2026, the relief rate increases substantially:
(4) In section 169N(3) of TCGA 1992 (as amended by subsection (1)), for “14%” substitute “18%”. (5) In consequence of the amendment made by subsection (4), in section 1H(1)(a) of TCGA 1992 (as amended by subsection (2)), for “14%” substitute “18%”. (6) The amendments made by subsections (4) and (5) have effect in relation to disposals made on or after 6 April 2026.
Consequently, qualifying BADR gains in the 2026/27 tax year attract an 18% rate. This relief is capped at a strict lifetime limit of £1 million of qualifying gains.
Arithmetic Example: BADR in 2026/27 A higher-rate taxpayer sells their trading company shares for a £1.5 million net gain in August 2026.
- Deduct AEA: £1,500,000 – £3,000 = £1,497,000 taxable gain.
- Apply BADR to Limit: The first £1,000,000 utilises the BADR lifetime limit and is taxed at the new 18% rate. (£1,000,000 × 18% = £180,000).
- Apply Standard Rate to Excess: The remaining £497,000 is taxed at the standard higher rate of 24%. (£497,000 × 24% = £119,280).
- Total Tax Liability: £180,000 + £119,280 = £299,280.
Investors’ Relief (IR)
For external investors who hold shares in an unlisted trading company but are not officers or employees, Investors’ Relief (IR) offers a similar tax advantage.
Like BADR, section 9 of the Finance Act 2025 increased the IR rate to 18% for disposals made on or after 6 April 2026. Furthermore, section 10 of the Finance Act 2025 drastically reduced the lifetime limit for IR from £10 million to £1 million for all disposals made on or after 30 October 2024.
Anti-Forestalling Rules
To prevent taxpayers from artificially locking in the older, lower rates, HMRC introduced strict anti-forestalling provisions. If a client entered into an unconditional contract after 30 October 2024, but the contract completes in the 2026/27 tax year, the disposal date is heavily scrutinised. Unless the client can prove the contract was entirely commercial and not driven by a tax advantage purpose, the new 18% rate will apply to the completion date.
Tax Implications for Corporate Sellers (2026/27)
If the transaction proceeds as an asset sale, the limited company bears the tax burden.
Corporation Tax
The company pays Corporation Tax on the chargeable gains arising from the sale of its business assets (such as goodwill or property). Section 11 of the Finance Act 2026 definitively sets the main rate of Corporation Tax for the financial year 2027 at 25%.
(1) Corporation tax is charged for the financial year 2027. (2) The main rate of corporation tax for that year is 25%.
If the company’s taxable profits are suitably low, it may instead qualify for the small profits rate (19%), subject to marginal relief calculations for profits between the lower and upper limits.
Substantial Shareholdings Exemption (SSE)
A highly beneficial exception exists if the selling entity is a holding company disposing of shares in a subsidiary limited company. Under the Substantial Shareholdings Exemption (SSE), if the holding company has owned at least 10% of the subsidiary’s ordinary shares for a continuous 12-month period, and the subsidiary is a qualifying trading company, any gain on the share disposal is entirely exempt from Corporation Tax.
Summary of 2026/27 Tax Consequences
| Disposal Type | Tax Subject | 2026/27 Rule / Rate | Statutory Authority / Threshold |
|---|---|---|---|
| Individual Share Sale (No Relief) | Capital Gains Tax | 18% (Basic) / 24% (Higher) | Standard rates apply after £3,000 AEA. |
| Individual Share Sale (BADR) | Capital Gains Tax | 18% rate applies | s 8 FA 2025. Subject to £1m lifetime limit. |
| Individual Share Sale (IR) | Capital Gains Tax | 18% rate applies | s 9 FA 2025. Lifetime limit reduced to £1m. |
| Corporate Asset Sale | Corporation Tax | 25% Main Rate | s 11 FA 2026 (for FY 2027). |
| Corporate Subsidiary Sale (SSE) | Corporation Tax | Exempt (0%) | Must hold ≥10% for 12 months in a trading subsidiary. |
| Pre-Sale Contracts | Anti-Forestalling | Review Completion Date | Unconditional contracts post-Oct 2024 cannot secure old rates if tax-motivated. |
Next steps for advisors: Review the company’s trading status and the client’s two-year holding period to ensure BADR eligibility is met before 5 April 2026, and calculate the double-taxation leakage of a proposed asset sale (Corporation Tax followed by individual dividend extraction) to strengthen your negotiating position for a share sale.
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