A helpful guide to Capital Gains Tax, Business Asset Disposal Relief, and Corporation Tax

When selling a business, understanding your tax obligations is crucial, as it impacts the final sale price, your net gains, and your future tax position. Engaging a reputable business transfer agent or broker can provide clarity on the tax implications of selling a limited company and help you maximize financial value during the transaction.

There are both annual and lifetime allowances to consider, which may influence your decision to sell or reinvest in another business. Taxes applicable when selling a business include Capital Gains Tax (CGT), Business Asset Disposal Relief (BADR), and potentially Corporation Tax.

Failing to plan for tax implications could lead to costly mistakes and reduced profits. The CBS Business Sales team can guide you through the process and help answer key questions, such as: How can I calculate Capital Gains Tax on the sale of my business?

How Much Tax Will I Pay When Selling My Business?

The tax you owe will depend on your business structure and the type of sale—whether you are selling the entire business via an asset sale or transferring ownership through a share sale.

Limited Companies: Typically subject to Capital Gains Tax and Corporation Tax on the profit from the sale.

Sole Traders & Partnerships: Subject to Capital Gains Tax, with potential eligibility for Business Asset Disposal Relief to reduce tax liability.

Given the complexities of tax on business sales, working with a business transfer agent and an accountant can simplify the process.

Capital Gains Tax When Selling a Business

Business owners often wonder if they need to pay tax, how much they owe, and how to calculate tax on the sale of a limited company. Understanding Capital Gains Tax is essential for determining your tax liabilities.

Capital Gains Tax applies to the profit made from selling a business—not the total sale amount. For example, if you bought a florist business for £230,000 and sold it for £350,000, your taxable gain would be £120,000 (the increase in value).

For the 2021/22 tax year, the annual CGT exemption is £12,300, meaning gains under this threshold are tax-free.

You may also qualify for tax relief through Business Asset Disposal Relief.

What Is Business Asset Disposal Relief (Formerly Entrepreneurs' Relief)?

Business Asset Disposal Relief (BADR), previously known as Entrepreneurs' Relief, reduces the rate of Capital Gains Tax to 10% on qualifying gains when selling a business.

BADR can be claimed on gains up to £1 million over your lifetime.

Any gains above this threshold will be taxed at the standard CGT rate, based on your tax bracket.

To qualify, you must have owned the business for at least two years before selling, with additional conditions potentially applying.

Do I Need to Pay Corporation Tax When Selling My Business?

If you operate a limited company and sell business assets as part of the transaction, you may be subject to Corporation Tax on chargeable gains.

Your tax liability will depend on various factors, including:

The amount earned from the sale.

Eligibility for tax relief schemes.

Business structure and sale strategy.

If BADR does not apply, alternative tax relief measures, such as Business Asset Rollover Relief or Incorporation Relief, may be available.

Given the complexity of business sale taxation, professional advice is strongly recommended before listing your business for sale. Proper planning can significantly reduce your tax burden.

How CBS Business Sales Can Help

Our team of expert business brokers collaborates with accountants to calculate your capital gains tax liability using a business sale tax calculator. We also help determine if you qualify for Business Asset Disposal Relief.

For more information, contact our business transfer agents, brokers, and valuers for a company valuation, free consultation, and guidance on tax obligations when selling your business.