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When it’s time to say goodbye to your business, whether for retirement or new adventures, how you sell it matters more than you think. Selling a company isn’t just about getting the best price; it’s about structuring the deal in a way that helps you avoid unnecessary taxes.
There are several ways to sell your business. You can take all the money upfront in cash, accept loan notes (where you’re paid later), or agree to earn-outs (where extra money comes based on future performance). Each method has different tax impacts, and choosing the wrong one could mean a hefty tax bill.
Business Asset Disposal Relief (BADR) – Your Golden Ticket
If you’ve owned and run a trading business for at least two years, you could qualify for BADR. This is a special tax break that reduces the capital gains tax (CGT) on the first £1 million of gains to just 10%—a massive saving, especially for higher-rate taxpayers who would otherwise pay 24%.
To qualify:
- The business must be a trading company or the holding company of a trading group.
- You must own at least 5% of the shares.
- Those shares must give you at least 5% of the voting rights, the company’s profits, and the value if the company is sold or closed down.
This tax rate will go up in future tax years—rising to 14% in 2025/26 and to 18% in 2026/27. So acting soon could save even more.
You can also claim BADR on the part of your business if you’re not selling it all. But remember, the claim must be made by the first anniversary of 31 January after the tax year in which the sale happened.
Full Cash Sale – Fast and Simple
Selling for full cash upfront is ideal. You get all your money quickly, and if you qualify for BADR, you only pay 10% CGT on your first £1 million of gain.
But here’s the catch: even if you’re paid in instalments over time, HMRC still taxes the entire gain in the year the deal is completed. That means you could owe tax before you’ve received all the money. To ease the cash crunch, HMRC might let you pay your tax in instalments, but only if you’re being paid over 18 months or more and the payments continue after 31 January following the sale year.
Loan Notes – Delay Now, Pay Later
If you accept loan notes instead of all cash, you’re agreeing to be paid later, and the tax can be deferred, too. That’s a win if you want to spread out the payments—and the tax hit.
But there’s a downside: most loan notes don’t qualify for BADR. That means when you eventually get paid, your gains may be taxed at 24% instead of 10%. You can choose to pay the tax immediately so you can claim BADR, but this only works if you have enough money upfront to cover the tax on both the cash and loan note parts.
Loan notes that don’t qualify (for example, those redeemable within six months or that pay interest) still let you defer tax—but you lose the ability to claim BADR altogether.
Earn-Outs – A Gamble for Bigger Gains
Earn-outs are when part of your sale price depends on how well the business does after you’ve sold it. For example, you might get an extra payment if the business makes a certain profit next year.
At the time of sale, HMRC expects you to make a reasonable guess at what those future payments might be worth. This guess is taxed like the rest of your sale. If you qualify for BADR, it applies to this estimated value.
But when you actually receive the extra money later, HMRC treats it differently. You’re not selling shares anymore—you’re cashing in on a contract. This means BADR doesn’t apply to the extra payment.
If your earn-out is paid in shares instead of cash, there’s a silver lining: the gain can be rolled over, so you only pay tax when you eventually sell those shares.
Smart Moves to Save More
One clever trick is to transfer shares to your spouse before selling the business. If they also meet the qualifying rules, you both get your own £1 million BADR allowance. That’s potentially £2 million of gains taxed at just 10% instead of 24%—a huge saving!
Final Thought: Plan Early, Save Big
The best time to start planning your business sale is at least two years before the sale. This gives you time to make sure you qualify for BADR and structure the deal in the most tax-smart way.
Whether you want quick cash, long-term payments, or a chance at bigger future profits, there’s a strategy that fits your goals. But remember: tax rules are complicated, and one wrong move can cost you dearly.
Don’t leave your hard-earned success in the hands of chance—plan wisely, sell smart, and keep more of what’s yours!