Selling your company will be one of the most important transactions you will make and you want to get it right.
The tax risks of selling a business should not be treated as an afterthought or something to be dealt with once a buyer is found.
Recent changes to Capital Gains Tax (CGT), Business Asset Disposal Relief (BADR) and Employee Ownership Trusts (EOTS) mean that exit planning is now more restrictive and less forgiving.
Owners who fail to plan early risk handing a substantial portion of their sale proceeds to HMRC and you must understand where these risks lie.
Capital Gains Tax
For the 2025/26 tax year, CGT on business disposals is charged at 18 per cent for basic rate taxpayers and 24 per cent for higher and additional rate taxpayers.
As CGT continues to move closer to Income Tax rates, the cost of getting the timing and structure wrong has increased.
CGT liabilities are created when contracts are exchanged, not when cash is received.
The difference of a single tax year can result in a higher tax bill, particularly for mid-market transactions.
A deal structure also plays a bigger role in determining your tax liabilities. Earn-outs, deferred consideration and loan notes can all affect when and how gains are taxed.
Without careful planning, sellers may find themselves paying tax earlier or at higher rates than expected.
Business Asset Disposal Relief (BADR)
BADR can reduce CGT on qualifying gains, making it a valuable relief available to business owners.
However, it is far more restrictive than you may realise and eligibility is assessed at the point of a business’s sale.
Changes to shareholdings, external investment, share classes, group structures or employment status could disqualify owners years before exit. These issues often emerge during due diligence and it may be too late to fix them.
Since April 2025, BADR applied a reduced CGT rate of 14 per cent on qualifying lifetime gains up to £1 million.
Any gains above this limit are taxed at the standard CGT rates of 18 per cent or 24 per cent, depending on the taxpayer’s circumstances.
From 6 April 2026, the BADR rate will increase from 14 per cent to 18 per cent and will reduce the tax advantage available to business owners who delay their disposal.
Employee Ownership Trusts
EOTs remain an attractive option for owners who are seeking a valuable exit while preserving business continuity.
However, the Autumn Budget 2025 announced that there will be a restriction on CGT relief on EOTs from 100 per cent to 50 per cent.
HMRC scrutiny has also increased and there are stricter rules around valuation and governance.
EOTs now require genuine intent and treating them as a last-minute alternative if a trade sale falls through can carry significant tax risk.
Corporation Tax
While CGT may dominate the conversation around selling your business, Corporation Tax can still affect the value.
Buyers may be cautious about trapped cash and potential tax liabilities on your balance sheet.
Poor profit extraction strategies or unclear reserves can lead to price reductions or delayed deals and a clear balance sheet and dividend strategy are a necessity.
Why does early tax planning matter when exiting your business?
The biggest risk when selling a business is often leaving planning too late.
Effective exit planning looks beyond tax liabilities alone and considers timing, structure, personal goals and succession altogether.
Planning three to five years before your exit allows for flexibility and can help reduce the liabilities to future tax changes.
How can we help with your business sale?
Selling a business can be daunting, but you do not need to make uninformed decisions.
With the right financial support, business owners can assess their CGT liabilities, BADR eligibility and alternative exit routes such as EOTs.
Our professional team can support your tax efficiency by advising on deal structures and allowable deductions that can reduce your tax liabilities.
We can ensure you remain compliant with changing reforms and feel confident you have gotten the best value for your business.
If you need support or advice on your tax liabilities when selling your business, contact us today.
