How Much Tax Will I Pay If I Sell My Limited Company in 2025/2026?

Selling your business is one of the most significant financial decisions you’ll make as a business owner. Understanding the tax implications is crucial for maximising your proceeds and avoiding unexpected costs. As an M&A solicitor and Managing Director at Zoppi & Co, I’ve guided numerous business owners through the legal process of selling their business, and the tax considerations can be complex but manageable with proper planning.

The amount of tax you’ll pay when selling your business depends on several factors, including your business valuation and the specific structure of your sale. The potential tax implications of selling a business can be significant and should be carefully considered from the outset. Let me break down everything you need to know about the key taxes involved.

Share Sale vs Asset Sale: The Foundation of Your Tax Strategy

Before diving into specific taxes, it’s essential to understand that how you structure your sale fundamentally impacts your tax liability. The tax implications when you sell a business can vary depending on your business structure and the method of sale. From a legal perspective, you have two primary options:

Share Sale: You sell your shares in the company to the buyer, who takes ownership of the entire company including its assets, liabilities, and cash reserves.

Asset Sale: The company sells its individual assets to the buyer, and you subsequently wind down the company, distributing remaining funds to shareholders.

This structural decision affects not just the legal process but significantly impacts your tax position across Capital Gains Tax, Income Tax, and VAT.

Capital Gains Tax: Your Primary Consideration

Capital Gains Tax (CGT) is typically the most significant tax when selling your limited company, and is often considered the main tax to plan for when evaluating the tax implications of selling your business, particularly in a share sale scenario.

Current CGT Rates and Allowances

For the 2025/26 tax year, CGT rates are:

• Basic rate taxpayers: 18% on gains up to the basic rate band, then 24%

• Higher rate taxpayers: 24% on most gains

The CGT rate you pay depends on your tax bracket and overall taxable income, with additional rate taxpayers subject to the highest capital gains tax rate.

• Annual CGT allowance: £3,000 (reduced from previous years)

Your personal allowance and tax-free allowance can reduce the amount of gain subject to the applicable tax rate, and your income tax rate may also influence the capital gains tax rate you pay.

Business Asset Disposal Relief (Entrepreneurs’ Relief)

This is where proper planning can save you substantial amounts. Business Asset Disposal Relief allows you to pay just 14% CGT on qualifying gains up to £1 million lifetime limit until 5 April 2026, and 18% from 6 April 2026, provided you meet specific criteria:

• You own at least 5% of the company’s shares

• You’ve held these shares for at least 24 months

• You’re an employee or director of the company

• The company is a trading company (not investment-focused)

Eligible entrepreneurs who meet these conditions can claim business asset disposal relief, allowing them to pay less capital gains tax through this valuable tax relief.

In a share sale, this relief can represent savings of tens of thousands of pounds. However, the relief doesn’t apply to asset sales in the same way, which is a crucial consideration when structuring your transaction.

Calculating Your CGT Liability

Your CGT liability is calculated on the gain (sale price minus acquisition cost and allowable expenses). This capital gain forms the basis of your capital gains tax liability, which is taxed at the applicable rate. For example:

• Sale price: £500,000

• Original investment: £100

• Professional fees: £15,000

• Gain: £484,900

With Business Asset Disposal Relief: £484,900 × 14% = £67,886

You will need to pay CGT on the taxable gain, and understanding how your gain is taxed is crucial for accurate planning.

Income Tax Implications

Income Tax considerations vary significantly between sale structures and how you extract value from your company.

Share Sale Scenarios

In a pure share sale, you’re generally dealing with capital rather than income, so Income Tax shouldn’t apply to the sale proceeds. However, if the sale includes employment contracts or restrictive covenants with separate payments, these may be subject to Income Tax and National Insurance.

Asset Sale and Company Winding Up

If you pursue an asset sale followed by company liquidation, the distribution of proceeds can be more complex:

Members’ Voluntary Liquidation (MVL): If you formally wind up the company, distributions are typically treated as capital, qualifying for CGT treatment rather than Income Tax. This can be more tax-efficient than taking dividends.

Informal Distribution: Simply withdrawing cash as dividends would be subject to dividend tax rates (8.75% for basic rate, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers in 2025/26).

VAT Considerations

VAT can be a hidden cost that catches business owners off guard, particularly in asset sales.

Share Sales and VAT

Share sales are generally exempt from VAT, as you’re selling shares rather than business assets. This is typically the cleaner approach from a VAT perspective.

Asset Sales and VAT

Asset sales can trigger VAT obligations:

Transfer of Going Concern (TOGC): If the asset sale qualifies as a TOGC, it may be VAT-free. However, strict conditions must be met, and both parties must be VAT-registered.

Standard Asset Sale: If TOGC doesn’t apply, VAT at 20% may be chargeable on the sale of business assets, significantly impacting the transaction value.

VAT on Professional Fees: Don’t forget that legal, accounting, and other professional fees typically attract VAT at 20%.

Extracting Cash from Your Company

One of the most common questions I encounter is how to handle cash reserves in the company, and how to maximise your profit from the sale. The approach differs significantly between sale structures.

Cash in Share Sales

In a share sale, cash typically remains with the company and transfers to the buyer. However, you can structure the deal to your advantage:

Working Capital Adjustments: The purchase price can be structured with a target working capital level. For every pound above this target, you receive an additional pound in the purchase price, effectively allowing you to retain excess cash value.

Pre-Completion Dividends: You might extract some cash as dividends before completion, though this requires careful timing.

Cash in Asset Sales

Asset sales may offer more flexibility for cash extraction:

Retained Cash: The company retains cash not needed for the business being sold. You can then extract this through dividends or, preferably, through a Members’ Voluntary Liquidation for better tax treatment.

Liquidation Distributions: In an MVL, cash distributions are treated as capital, potentially qualifying for CGT treatment and Business Asset Disposal Relief.

Corporation Tax Implications

Don’t overlook Corporation Tax, which can affect both sale structures: You may need to pay corporation tax on chargeable gains arising from the sale of company assets.

Asset Sales

The company pays Corporation Tax on any gains from selling business assets.

Share Sales

The company isn’t directly involved in the transaction, so Corporation Tax on the sale itself isn’t typically an issue. CT may be payable if the seller is another limited company (e.g, a holding company). As always, please seek specialist tax advice.

Pre-Sale Planning

Consider timing your sale to optimise Corporation Tax, potentially spreading gains across tax years or utilising available reliefs.

The Importance of Professional Advice

While this guide provides an overview, every business sale is unique. The interaction between different taxes, your personal circumstances, and the specific structure of your deal creates complexity that requires specialist advice.

I am not a tax specialist, nor am I an accountant. Accordingly, you should seek the advice of a specialist. This should merely be a guide so that you are more prepared when speaking with your chosen advisor.

Tax considerations should inform your legal strategy from the outset. As an M&A solicitor, I always work closely with specialist tax advisers to ensure our clients’ interests are protected not just legally, but tax-efficiently.

The difference between good and poor tax planning can easily amount to tens of thousands of pounds in additional tax liability. After selling your business, you will need to pay tax on your gains, typically by reporting them through a self assessment tax return and paying any tax due promptly. Given the life-changing nature of selling your business, investing in proper professional advice is invariably worthwhile.

Key Takeaways

The structure of your sale—shares versus assets—fundamentally affects all these taxes and your ability to extract cash from the business efficiently.

Tax reliefs such as Business Asset Disposal Relief and asset rollover relief can help small business owners and larger businesses reduce the amount of tax paid on a sale. When you sell your business, the structure—whether as a sole trader, partnership, or limited company—will impact your tax bill and the reliefs available.