Most of the tax on a business sale is Capital Gains Tax on your profit. In 2026 the main rates are 18% and 24%, but Business Asset Disposal Relief can cut the rate to 18% on your first £1m of qualifying gains. How you sell, shares or assets, changes the bill significantly.
The short answer
- The main tax on a business sale is Capital Gains Tax on your profit, not on the full price.
- A share sale is usually more efficient than the company selling its assets and paying cash out.
- BADR cuts the CGT rate to 18% on the first £1m of qualifying lifetime gains; other gains are taxed at 18% or 24%.
When you sell a business, the headline tax is almost always Capital Gains Tax (CGT) on your profit, broadly, the sale price less what you originally paid or invested, less allowable costs. It is not a tax on the whole sum you receive, only on the gain. For many owners the effective rate is far lower than they fear, because reliefs and the structure of the deal can reduce it substantially. This is general information, not personal advice.
The single biggest variable is how you sell. Selling the shares of your limited company is taxed very differently from selling the company’s assets (its equipment, goodwill and premises) and then extracting the cash. The route you take can change the bill by tens of thousands of pounds, so it deserves attention long before you shake hands on a price.
The taxes that can apply
How different sale routes are typically taxed (2026)
| Route | Main tax | Typical effect |
|---|---|---|
| Sell your shares | CGT on the gain | Often the cleanest, one layer of tax, and BADR may apply. |
| Company sells its assets | Corporation tax in the company, then CGT or income tax on getting the cash out | Two layers of tax; usually less efficient for the seller. |
| Sole trader / partnership sells | CGT on the gain on goodwill and assets | BADR can apply to qualifying business assets. |
| Extract cash as dividend first | Income tax up to 39.35% | Higher-taxed than a capital gain, avoid where a share sale is possible. |
For most company owners, a share sale is the goal. You dispose of your shares, the gain is a capital gain, and if you qualify, Business Asset Disposal Relief reduces the rate on the first £1m of lifetime gains. A buyer, however, often prefers to buy the assets rather than the company, so who bears which tax becomes part of the price negotiation.
What the CGT rate actually is
From 6 April 2026 the position is:
- 18% on qualifying gains covered by Business Asset Disposal Relief, up to a £1m lifetime limit.
- 24% on gains above that limit for a higher- or additional-rate taxpayer.
- 18% on any gains that fall within your remaining basic-rate band.
- A £3,000 annual CGT exemption sits on top, covering the first slice of gains tax-free.
One consequence worth understanding: now that BADR is charged at 18%, the same as the basic CGT rate, its real advantage is the gap against the 24% higher rate, rather than the deep discount it once offered. On a £1m qualifying gain, BADR at 18% versus 24% is still a saving of around £60,000, so it remains well worth securing, but the case for careful planning is stronger than ever.
It’s a tax on the gain, not the price
If you started your company from nothing and sell for £900,000, your gain is close to £900,000. But if you invested £300,000, only the £600,000 profit is taxed. Keep good records of what you put in, allowable costs directly reduce the bill.
Where the planning happens
The biggest savings come from decisions made a year or more before a sale, not on completion day. Making sure the company is genuinely trading (not sitting on large cash reserves or investment property that could taint relief), that each shareholder personally meets the qualifying conditions, and that spouses who work in the business hold shares in their own right, can all widen the relief available. Timing a disposal across two tax years, or around pension contributions, can help too, a point covered in our guide to selling your business.
It also pays to think past the sale. Once the money lands, the question becomes how to invest it, fund your retirement and manage inheritance tax on a suddenly larger estate, because from April 2026 the generous 100% Business Property Relief that shelters a trading company is itself capped at £1m combined with agricultural relief. Selling can therefore move wealth out of a sheltered asset and into your taxable estate, which is exactly the kind of trade-off worth modelling in advance.
Because the numbers are large and the rules interact, this is an area where regulated advice earns its fee many times over. The free Vetted Wealth service matches you with an independently vetted, FCA-regulated adviser, see business exit and succession planning, or your local hub in Devon. This is information and a matching service, not personal advice; tax treatment depends on your circumstances and can change, and investments can fall as well as rise.
In summary
- The main tax on a business sale is Capital Gains Tax on your profit, not on the full price.
- A share sale is usually more efficient than the company selling its assets and paying cash out.
- BADR cuts the CGT rate to 18% on the first £1m of qualifying lifetime gains; other gains are taxed at 18% or 24%.
- A £3,000 annual exemption applies, and allowable costs reduce the taxable gain.
- The biggest savings come from planning a year or more ahead, structure, shareholdings and timing.
- Selling can pull wealth into your taxable estate: this is information, not personal advice.
Sources and further reading
Read the full guide
For the complete picture, see our in-depth guide: Selling a Business Tax-Efficiently.
Speak to a vetted business exit & succession planning specialist
This is free information, not personal advice. When you’re ready, we’ll match you with an independently vetted, FCA-regulated specialist, free, and with no obligation.
