If I Sell My Business How Much Tax Will I Pay? | A Guide

By Neil Wright

If you have questions about tax on selling a business — or are looking to mitigate tax when selling — we can help. The tax implications of selling a business can get complicated quickly. In this article, we will cover the main considerations that will affect the tax you will pay, and how our service can help you to manage and mitigate the tax implications of selling your business.

At KBS Corporate, we specialise in selling SMEs with valuations up to £150million. We have over 25 years of experience and are firmly established as the UK’s No.1 mid-market company sales adviser. Visit our selling a company page for further information.

With that said, we are going to examine the various scenarios and factors that could influence the tax you will pay on the completion of a sale.

If I sell my business, how much tax will I pay?

The answer largely depends on how the sale is structured. Factors such as:

What is the buyer purchasing from you? For example, shares in a company that you own directly, a business that you own personally, or assets from a company that you own?
How much did you pay for what you are currently selling? For example, what did you originally pay for the shares or assets that you’re selling?
How much money will you be receiving from the sale?
Is the buyer offering cash up front or offering some other form of payment?

Put your company up for sale and you’ll soon find your potential buyers are quite sophisticated and will suggest lots of different ways of purchasing it. All of these different ways will involve different types of ‘consideration’.

The most obvious consideration is a cash payment. The buyer might opt to pay you on day one. All you have to do is finish the sale and they’ll transfer money into your bank account.

But there are other forms of consideration that buyers suggest, normally to try and reduce their risk of overpaying, or to try and tie you in to continue to work for the business for a little longer.

Other forms of consideration buyers may suggest:

Gradual payments with your involvement. The buyer might want you to stick around in the business for a couple of years after the sale, during which they gradually take full control. As part of this deal, they might ask to make gradual payments over several years.

Example: Say your company is valued at £10m. The buyer might opt to give you £5m up front and the remaining £5m over three years in instalments. The final £5m may come with extra caveats, such as only paying if the company hits certain performance targets.

Shares in their company. The buyer might offer you an alternative to cash. They might offer to give you shares in their own company.

Example: The buyer might offer to purchase 100% of your company, and in consideration, offer you some money along with a 10% stake in their company — which is the equivalent of buying your company completely. You will still be a shareholder in the buyer’s company and, as a minority shareholder, will get some money from it.

All of these questions and considerations will influence how the deal is structured, and the tax implications of selling your company will be very different across these different types of considerations. This will range from paying tax up front on the whole amount to not paying tax until a future event, such as selling your shares in the buyer’s company or receiving the delayed payments from the buyer.

When selling a company, tax issues can sometimes arise around giving away money or shares just before the sale.

If sellers try to give money to people who don’t own shares, or give shares to people just before selling, it raises a red flag. For example, if an employee was promised shares but never received them, and then gets them just before the company is sold, that can cause a problem.

We strongly recommend that anyone planning to give money to someone who isn’t a shareholder should get tax advice. This is an example of a common issue that repeatedly arises in business sales. Based on our experience of the common issues, we’ve created a standard report that helps sellers understand the potential problems, so we can have more focused discussions with them.

Make a confidential enquiry today and receive your report.

What profit will you make from the sale?

This is an important question because you usually only pay tax on the profit. For example, if you bought something for £100,000 and sold it for £500,000, you would only pay tax on the £400,000 profit.

But figuring out what you originally paid isn’t always easy. And this can depend on how the company you’re selling was acquired in the first place.

For example, some sellers looking to sell their shares in a company may have inherited those shares or received them as a gift to start with. This adds further complexity and will require some digging — as it will influence your profit and therefore how much tax you will pay.

If I’m only taxed on my profits, what tax rate can I expect to pay?

This also has a complicated answer. If you’re making profits on selling your shares, then it’s usually capital gains tax — which is lower than income tax. However, sometimes exposure to income tax and National Insurance will also arise, especially in cases where employees have been gifted shares.

Capital gains tax is better than income tax because it’s lower. The basic rate is 24%. For example, if you make a £1,000,000 profit, you’ll pay £240,000 in tax.

There’s a lower 10% tax rate (rising to 14% from April 2025 and 18% from April 2026) for business owners who own at least 5% of their company and qualify for Business Asset Disposal Relief. This applies to the first £1,000,000 of profit. So, if you are eligible and sell before April 6th 2025, you will pay much less tax on the first £1m received (10% instead of 24%).

Different tax rates can also apply to the different types of consideration discussed above.

Will I have to pay capital gains tax when I sell my business?

Yes — selling your business will likely trigger capital gains tax. The final tax amount depends on several factors:

Whether your assets qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief).
The total sale price and how it’s structured (e.g. cash vs. shares).
And whether any income tax exposure exists.

In the unusual circumstance that you plan to leave the UK for a significant period of time before selling your business, you might not need to pay UK capital gains tax, however there are anti-avoidance rules in place to prevent you temporarily leaving the UK. If you do intend to leave the UK, you will also need to consider the tax rules of whichever country you’re moving to.

Tax on the sale of a business is complicated and varies significantly based on the buyer’s proposed deal structure.

Seeking tax advice is crucial, as it can drastically impact your final tax liability. Failing to do so could result in paying substantially more tax (e.g. a 10-20% difference) that could have been easily avoided with professional guidance. Therefore, we would always recommend consulting a tax adviser before finalising any business sale.

Will I need to pay corporation tax when selling my business?

If your company sells its business, the company pays corporation tax. If you (as an individual) sell your business or shares in your company, you pay capital gains tax, not corporation tax.

Will I qualify for Business Asset Disposal Relief?

Business Asset Disposal Relief is available for both incorporated and unincorporated businesses.

For sole traders and partnerships, it generally applies if you’re selling the entire qualifying business. For companies, you must be an employee or director and have held at least 5% of the shares for at least two years before the sale. Meeting these conditions qualifies you for the relief.

Are there other tax reliefs I could qualify for?

Yes. You could qualify for Investor’s Relief, which is similar to Business Asset Disposal Relief and reduces capital gains tax to 10% on the first £1m of taxable gain.

Investor’s Relief is designed to encourage investment in small businesses and applies to individuals not connected to the company. If you’re selling shares in a company you’re not otherwise connected to, it is worthwhile checking out whether you qualify for Investor’s Relief.

There are also various other reliefs from income tax and capital gains tax that could apply if you’re willing to reinvest the proceeds from the sale in new qualifying business assets. These reliefs are very case specific and further advice would be required to determine whether you might be able to benefit.

We can help you mitigate the tax burdens of selling a business. Here’s how:

Our sister company, K3 Tax Advisory, is one component of our K3 Capital Group and is dedicated to delivering quality business tax advice.

If you choose to partner with KBS Corporate, you will get a free introductory call with our tax advisory team to identify potential tax issues. The tax team have also developed a report which covers the key tax issues to consider when selling a business. The report is priced very competitively at £595 + VAT which also includes a follow-up call to discuss any questions or risk areas for you specifically. The report has been developed based on our tax team’s extensive experience advising on business sales and is extremely well priced compared with the hourly rates charged by experienced tax advisers.

Your report will:

Address key issues in simple English, while helping you to identify relevant areas.
Serve as a reference throughout the sales process, especially when evaluating buyer proposals.
Allow sellers to quickly grasp the tax implications without repeated, costly consultations and advisers.
Enable you to have more focused discussions on areas of specific concern.
Give you peace of mind that you’re not paying unnecessary tax when selling a business.

Contact us today and we will get to work immediately on your report. If, following reading the report and having a follow-up call, it is clear that additional tax advice would be beneficial, the tax team has very experienced advisers across all taxes who will be able to assist further.

For further information on all aspects of selling a business, check out our guide on ‘How to sell a business properly’ here.