Thinking of Selling Your Business? Tax Planning Steps Before You Exit

The difference between a well-planned business exit and an unplanned one can easily run to tens of thousands of pounds in tax. If you are considering selling your business in the next 1 to 3 years, the tax planning work needs to start now, well before serious buyer conversations begin.

Many of the most effective reliefs and strategies require time to implement properly. If they are attempted too close to the sale, they may not work, may fail the qualifying conditions, or may raise questions about whether the arrangements were commercial. This guide covers the key steps, the reliefs you should know about, and why getting proper advice early is one of the most important things you can do.

Why Tax Planning Before a Sale Matters More Than You Think

Most business owners spend years building something valuable and relatively little time thinking about how to exit tax-efficiently. The result is that when a sale happens, often quickly and under pressure, the tax position is whatever it happens to be rather than what it could have been with preparation.

The tax implications of a business sale can be significant. Depending on the structure of the sale, the size of the gain, and the reliefs available, a seller might pay anything from 0% on a qualifying Employee Ownership Trust sale to 18% under Business Asset Disposal Relief, or 24% under standard Capital Gains Tax rates. In some asset-sale structures, the combined company and personal tax cost can be higher once the proceeds are extracted.

The difference between 0% and 24% on a £500,000 gain is £120,000 in tax. On a £1 million gain, the difference becomes a life-changing sum.

Our post on what are the top eight capital gains tax reliefs you can claim gives a good overview of the range of CGT reliefs available. And our post on capital taxes covers the broader capital tax landscape relevant to business owners.

Business Asset Disposal Relief: The Most Important Relief for Business Sellers

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, allows qualifying business owners to pay a reduced rate of Capital Gains Tax when they sell all or part of their business, or qualifying shares in their personal trading company.

Without BADR, gains from business disposals are usually taxed at the standard CGT rates of 18% for gains falling within the basic rate band and 24% for gains above that level. These rates have applied since October 2024.

With BADR, qualifying sellers pay a reduced rate on gains up to the £1 million lifetime limit. The BADR rate was 10% for disposals made on or before 5 April 2025, increased to 14% for disposals between 6 April 2025 and 5 April 2026, and is 18% for qualifying disposals made on or after 6 April 2026.

To qualify for BADR on a company share sale, you generally need to meet conditions that have applied for at least 2 years before the sale:

BADR Condition	Requirement
Type of disposal	Shares in a personal trading company, or assets of a trading business
Shareholding	At least 5% of ordinary share capital and voting rights
Economic interest	Broadly, entitlement to at least 5% of distributable profits and assets on a winding up, or 5% of sale proceeds
Office or employment	Must be an officer or employee of the company
Trading requirement	The company must be a trading company, or holding company of a trading group
Minimum qualifying period	Conditions must usually have been met for at least 2 years before the sale

The 2-year qualifying period is one reason why planning needs to start early. If you are close to a sale but have not held the required shareholding, met the personal company conditions, or been an employee or officer for 2 full years, BADR may not apply, and there may be little you can do at the last minute to change that.

Our post on the autumn budget summary covers the changes to CGT rates and BADR in full, and our post on capital taxes gives additional context on how gains from business disposals interact with the wider personal tax position.

Share Sale vs Asset Sale: Understanding the Tax Difference

One of the most fundamental decisions in any business sale is whether it is structured as a share sale or an asset sale. The tax implications of each are very different, and sellers and buyers often have competing preferences.

Factor	Share Sale	Asset Sale
What is sold	The shares in the company	The individual assets of the business
Who pays tax on the gain	The selling shareholder personally, usually through CGT	The company first, usually through Corporation Tax on chargeable gains, then shareholders when extracting proceeds
BADR availability	Yes, if the shareholder and company conditions are met	Yes for sole trader or partnership business sales, but different treatment applies to limited company asset sales
Buyer’s perspective	Inherits the company, including its history and liabilities	Can choose the assets and may avoid historic company liabilities
Often preferred by	Sellers	Buyers

Sellers often prefer a share sale because it can result in a single Capital Gains Tax charge at the personal level, with the possibility of BADR reducing the rate. An asset sale by a limited company can create a Corporation Tax charge within the company first, followed by a further tax charge when the post-tax cash is distributed to shareholders.

Buyers often prefer asset sales because they can avoid taking on undisclosed liabilities, ongoing HMRC disputes, employment issues, or historic tax problems within the company. In practice, the structure agreed is often a negotiation, and the tax cost to the seller may need to be reflected in the price accepted.

Our post on corporation tax covers the mechanics of how Corporation Tax applies to asset disposals at the company level.

Timing Your Sale for Maximum Tax Efficiency

The timing of a business sale can have a meaningful impact on the tax outcome, even when the sale price is fixed.

The annual Capital Gains Tax exempt amount is currently £3,000 per year for individuals. While this is modest relative to most business sale gains, it is still worth using where available. If you have a spouse or civil partner, they also have their own annual exempt amount.

Transferring shares to a spouse or civil partner before a sale can sometimes make use of their annual exempt amount and potentially their lower tax bands. Transfers between spouses and civil partners who are living together are usually made on a no gain, no loss basis for CGT purposes, meaning the recipient takes over the original base cost.

However, pre-sale transfers need care. The transfer must be a genuine transfer of beneficial ownership and should be completed before the sale contract becomes unconditional. If the transfer is attempted too late, or the spouse or civil partner does not genuinely own the shares, the expected tax result may not follow.

The tax year in which the disposal falls also matters. If you complete a sale in April rather than March, you may gain additional time before the CGT is payable through self-assessment. This is rarely a reason to delay a sale on its own, but it is worth factoring in where you have flexibility over completion dates.

Our post on income tax bands in England, Wales and Northern Ireland is useful background for understanding how a sale gain interacts with your other income in the year of disposal.

Extracting Excess Cash Before You Sell

One of the most important pre-sale steps for limited company owners is to review how much cash is sitting in the company and whether any of it should be extracted before the sale.

When a company is sold, the buyer will usually look closely at the cash position. Some transactions are priced on a cash-free, debt-free basis, with a separate completion accounts adjustment. Others may treat surplus cash differently in the negotiation. The key point is that excess cash should not be ignored.

If cash is distributed as a dividend before the sale, it is taxed as dividend income. For 2026/27, dividend tax rates are 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. If the cash remains in the company and is reflected in the share price, the seller may instead pay CGT on the resulting gain, potentially at 18% if BADR applies.

However, this is not always straightforward. Excessive non-trading assets, including surplus cash not required for the trade, can also be relevant when considering whether a company qualifies as a trading company for BADR. Getting the timing and method of cash extraction right before a sale requires careful modelling of your specific numbers.

Our post on UK dividend tax explained and our post on director pay: salary vs dividends are both useful context for this decision.

One important point: extracting value in the years before a sale through employer pension contributions can be significantly more efficient than taking it as a dividend, provided the contribution is commercially justified and meets the relevant tax rules. A pension contribution from the company can be deductible against Corporation Tax, carries no National Insurance, and the money grows in a tax-efficient pension environment.

If you are within 5 to 10 years of a planned exit, building up pension contributions in the years leading up to the sale may be one of the most tax-efficient planning steps available.

Resolving Director’s Loan Account Balances Before a Sale

If you have an outstanding director’s loan account balance, where you owe money to the company, this will need to be dealt with as part of the sale process. A buyer will not usually want to acquire a company where the seller still owes money to the business and there is no clear plan for repayment.

If the loan is repaid before the sale, the balance sheet is cleaner, but the repayment needs to be funded properly. If the loan is cleared using a dividend, the company must have sufficient distributable reserves and the director-shareholder may have a personal dividend tax charge. If the loan is written off, it can create personal tax consequences and may also affect the company’s tax position.

An overdrawn director’s loan account can also create a Section 455 tax charge for the company if it remains outstanding beyond the repayment deadline. For loans made on or after 6 April 2026, the Section 455 rate is 35.75%.

Our post on what is a director’s loan and how does it work covers the tax implications of director’s loan accounts and the options for resolving them.

Cleaning Up Your Accounts and Compliance Before a Sale

A buyer and their advisers will carry out financial due diligence before completing a purchase. This typically involves reviewing several years of statutory accounts, VAT returns, payroll records, Corporation Tax returns, management accounts, contracts and HMRC correspondence.

What they find during due diligence directly affects their confidence in the purchase and can lead to price reductions, indemnity requirements, retention of part of the sale price, or in some cases a decision to walk away.

Common issues that emerge during due diligence and reduce sale price or create complications include:

• Late or inaccurate filing history with HMRC or Companies House
• Undisclosed tax liabilities or unresolved HMRC enquiries
• Personal expenses run through the business and claimed as deductions
• Payroll irregularities or incorrect employment status decisions
• VAT errors or under-declarations
• Inconsistencies between accounts, Corporation Tax returns and VAT returns
• Weak bookkeeping records or missing supporting documentation

Starting to clean up these areas at least 2 to 3 years before a planned sale gives you time to correct errors, file amendments where needed, and demonstrate a clean compliance record to buyers.

Our post on corporation tax mistakes that attract HMRC attention covers the issues that most commonly arise in company tax returns. Our post on amending a tax return explains how corrections are made and the time limits involved.

Our post on understanding late filing fees at Companies House is relevant if your company accounts filing history has gaps, as this is visible on the public register and is one of the first things a buyer’s solicitor will check. Our post on Companies House identity verification covers the newer compliance requirements around identity verification that buyers may also look for.

Well-maintained bookkeeping throughout the years leading up to a sale makes the due diligence process considerably smoother. Good bookkeeping services mean your records are accurate, consistent and easy to present to buyers and their advisers.

Employee Ownership Trusts: A CGT-Free Exit Option Worth Knowing About

For business owners who are open to their employees becoming the beneficial owners of the business, a sale to an Employee Ownership Trust (EOT) can result in a CGT-free exit. The conditions are specific and must be followed carefully.

The key requirements include:

• The EOT must acquire a controlling interest, meaning more than 50% of the company’s ordinary share capital, voting rights and economic rights
• The trading company requirement must be met
• The all-employee benefit requirement must be satisfied
• The seller must not retain control of the company through the trust after the sale
• The trustees must meet the relevant residence and independence requirements
• The purchase price must not exceed market value

When these conditions are met, the selling shareholders can pay no Capital Gains Tax on their gain. There is also an additional benefit: once the company is owned by an EOT, employees can receive qualifying income tax-free bonuses of up to £3,600 per year. National Insurance can still apply to those bonuses.

EOT sales are popular with business owners who care about the future of the business and their employees, as well as those for whom the CGT treatment makes it more attractive than a trade sale to an external buyer. They require specialist legal, tax and valuation advice and generally take longer to structure than a conventional sale.

What Buyers Look for in Due Diligence

Understanding what a buyer will scrutinise helps you prepare. The main areas of focus in a typical due diligence process for a small business include:

• Three to 5 years of statutory accounts and management accounts
• Copies of HMRC returns and any correspondence or enquiries
• Payroll records and evidence of employment status decisions
• VAT returns and any significant adjustments
• Details of contingent liabilities, including claims, disputes and HMRC investigations
• Key contracts with customers, suppliers, landlords and employees
• Evidence of intellectual property ownership
• The director’s loan account and any related party transactions
• Details of leases, finance agreements and outstanding debts
• Evidence that dividends were supported by distributable reserves

Having clean company accounts prepared professionally throughout the years leading up to a sale is one of the most valuable things you can do to support a smooth exit. Our post on limited company year-end accounts explains what goes into preparing these correctly.

Buyers also want to see clear and reliable financial reporting throughout the business. Regular financial reports produced by your accountant demonstrate that the business has been managed with proper oversight, which increases buyer confidence and supports a stronger valuation discussion.

Structuring Your Business Ahead of a Sale

Some business owners benefit from restructuring ahead of a sale. Common examples include:

• Inserting a holding company above the trading company using a share-for-share exchange, where this is commercially justified and appropriate
• Separating investment assets, such as property, from the trading business so that only the trading company is sold
• Ensuring the company qualifies as a trading company rather than an investment company for BADR purposes
• Tidying up minority shareholdings or alphabet share structures before buyer negotiations begin
• Reviewing whether intellectual property, contracts and assets are held in the correct entity

These restructuring steps can take 12 months or more to implement properly and need to be done well in advance of any sale. Some transactions may also require HMRC clearance or specialist tax advice to avoid unintended tax charges.

Our post on setting up a limited company in the UK covers the structural basics, and our post on partnership accounts explained is relevant if you operate through a partnership and are thinking about incorporating before a sale.

For sole traders considering a sale, our post on sole trader to limited company covers the process of incorporating and the tax implications, which is relevant if you are thinking about incorporating ahead of an exit to take advantage of the more flexible options a limited company structure provides.

How Asmat & Co Accountants Can Help

Business exit planning requires a combination of accounting, tax and commercial knowledge. As slough trusted accountants with nearly 2 decades of experience, Asmat & Co Accountants work with business owners at every stage of the pre-sale process, from ensuring your accounts and compliance are in the best possible shape to advising on the most tax-efficient way to structure your exit.

We make sure your annual company accounts and self-assessment tax returns are accurate, timely and free of the compliance issues that create problems in due diligence. We produce the financial reports that buyers want to see, and we advise on the timing and method of pre-sale cash extraction, including pension planning, dividends and salary.

Our small business accountants service includes ongoing support for the years leading up to a planned exit, ensuring your financial housekeeping is continuously in good order rather than needing emergency work shortly before a sale.

Our limited company accountants team has experience with pre-sale restructuring, BADR qualification analysis, and working alongside solicitors and corporate finance advisers through the transaction process.

If you are based across Berkshire, our accountants in Reading team offers the same service from our Reading office.

Our post on choosing the right accountant is worth reading if you are currently without professional support and are managing your own accounts in the years before a planned exit. And our post on virtual CFO services and why they are in demand is relevant if you want more strategic financial oversight as you approach a sale, not just compliance.

Our post on what an accountant does for an SME gives a realistic picture of the day-to-day and strategic support that good professional accounting provides to business owners at every stage.

Frequently Asked Questions

How far in advance should I start planning a business exit?

Ideally, 3 to 5 years before you expect to sell. Some of the most effective planning steps, such as ensuring BADR qualification, restructuring the business, building pension contributions, and establishing a clean compliance record, take time to implement and cannot be rushed.

What if my company has had some compliance issues in the past? Does that affect the sale?

It depends on the nature and extent of the issues. Minor historical errors that have been corrected and settled are generally manageable. Ongoing HMRC enquiries or undisclosed liabilities are much more problematic because buyers will usually want these resolved, priced into the deal, or covered by warranties, indemnities or escrow arrangements. The earlier you identify and address compliance issues, the better your position.

Can I sell my business if it still has an active HMRC enquiry?

Technically yes, but it significantly complicates the sale. Buyers will usually require any open enquiries to be resolved or adequately provided for before completion. This may involve agreeing a settlement with HMRC before the sale, negotiating an indemnity, or agreeing an escrow arrangement where part of the sale price is held back until the enquiry is resolved.

Do I pay CGT if I sell to family members?

Yes, in many cases. Sales to connected persons, including many family members, are generally treated as taking place at market value for CGT purposes, regardless of the price actually paid. You cannot avoid CGT simply by selling at a discount to a family member. Gifts to a spouse or civil partner are usually treated on a no gain, no loss basis at the time of transfer, but the recipient normally inherits your original base cost.

What is the difference between BADR and Investors’ Relief?

BADR generally applies to business owners who are employees or officers of the company they are selling and who meet the personal company conditions. Investors’ Relief applies to certain external investors who hold qualifying shares in unlisted trading companies but are not employees or officers, except in limited circumstances. Both reliefs now use the same 18% rate for disposals on or after 6 April 2026, but the qualifying conditions differ. Most small business owner-managers will be looking at BADR rather than Investors’ Relief.

If I have already used some of my £1 million BADR lifetime limit, can I still use the rest?

Yes. The £1 million limit is cumulative across your lifetime, not per transaction. If you have used £400,000 of your lifetime limit on a previous qualifying disposal, you have £600,000 remaining for future qualifying disposals.

Should I take advice from a specialist corporate finance adviser as well as my accountant?

For larger transactions, yes. A corporate finance adviser can help with valuation, deal structuring, finding buyers and managing the transaction process. Your accountant focuses on the tax, accounting and financial accuracy side. For smaller transactions, a good accountant with experience of business sales can often provide valuable support in the preparation phase, alongside your solicitor.

What happens to my VAT registration when I sell?

If you sell the business as a going concern, and the conditions for a Transfer of a Going Concern are met, the transfer may be outside the scope of VAT rather than a normal taxable sale. This usually depends on the buyer carrying on the same kind of business and being VAT-registered, or required to be VAT-registered, where relevant. If the sale does not qualify as a TOGC, VAT may be chargeable on certain assets. This is an area where specific advice is needed depending on how the sale is structured.

Start Your Exit Planning Today

The businesses that achieve the best after-tax outcomes from a sale are those that planned for it years in advance, not months. Every year you spend with clean accounts, a compliant tax record and a clear extraction strategy is a year that can protect your final net proceeds.

Contact Asmat and Co today to start the conversation about your exit planning and make sure that when the right buyer comes along, you are fully prepared to make the most of it.