Understanding Tax When Selling a Business: Asset vs Share Sale

You’ve spent years growing your business, and now it’s time to sell. But before you pop the champagne, there’s one important factor to consider: understanding tax when selling a business. The way you sell your business—whether through a share sale or an asset sale—has significant tax implications that can impact how much of the final sale price you actually get to keep.

In this guide, we’ll explore the key differences from a tax perspective, helping business owners understand how each option affects their tax liability and how they can structure their sale to minimise tax exposure.

Knowing the difference between an asset and a share sale is the key factor for any business owner considering buying or selling, and we can’t stress its importance enough. If you choose the wrong structure or misunderstand what it means, it could cost thousands in extra tax, so make sure to get this right from day one.

Share Sale vs. Asset Sale: What’s the Difference?

When selling a limited company, you generally have two options:

1. Share Sale – You sell your ownership (shares) in the company, transferring the entire business, including its liabilities, to the buyer.
2. Asset Sale – You sell individual assets of the company (such as equipment, property, stock, or goodwill), but the company itself remains under your ownership.

Buyers and sellers often have different preferences when it comes to structuring a deal. Buyers tend to favour asset sales to avoid taking on existing business liabilities, whereas sellers typically prefer share sales due to their more favourable tax treatment. For the seller, a share sale is often much easier as it involves lower tax rates.

Comparatively, an asset sale often favours the buyer as you can pick and choose which assets you purchase and you avoid any liabilities, like debts or legal claims. The flip side is that for sellers, an asset sale comes with a higher tax burden due to double taxation, the first being on corporation tax when you sell the assets, and then when the rest of the assets are distributed as you may be taxed via CGT.

With that in mind, let’s dive into the tax implications of each option.

Tax Treatment of a Share Sale

A share sale means you’re selling your shares in the company, handing over full ownership and control to the buyer. The business itself remains intact as a legal entity and the buyer purchases ownership shares of the business. Usually, a share sale is simpler for the seller as they’re selling the business as a whole, warts and all, which in this case means all of its liabilities and assets. However, if the business does have too many liabilities, this could be off-putting for any potential buyers.

This eliminates the risk of double taxation since the company itself is not taxed, only the shareholders pay Capital Gains Tax on the sale of their shares.

For this reason, share sales are often what the sellers prefer. The seller simply sells their shares of the business and has the money in their hand (subject to CGT), whereas an asset sale is more complex.

For buyers, a share sale can be somewhat riskier as they inherit the business liabilities, including any debts, legal issues or tax obligations. This isn’t to say a share purchase is all negative for buyers, it just means there may need to be warranties or indemnities put in place from a legal perspective, which requires a good business lawyer (cough, cough). However, a key advantage is there is no doubt that the target company can continue to supply products and services to the customers, because customer contracts transfer with the sale. From a tax perspective, the buyer may also get less capital allowances than they would with an asset sale.

How a business is structured for sale ultimately depends on the size of the business, what the seller wants, and also what realistically will attract a buyer. For that reason, speaking to a tax advisor long before you plan to sell is wise. We suggest at least a year or two before, as you’ll be able to structure your business correctly and make any changes necessary.

Key Tax Considerations for a Share Sale:

• Capital Gains Tax (CGT):
  • You pay CGT on the profit made from the sale of your shares.
  • Business Asset Disposal Relief (previously Entrepreneurs’ Relief) can reduce CGT to 10% on gains up to £1 million, provided you’ve owned at least 5% of shares and been an employee or director for at least two years.
  • If BADR doesn’t apply, CGT rates are 10% for basic rate taxpayers and 20% for higher rate taxpayers.
  • BADR is due to go up to 18% by April 2026
• Stamp Duty:
  • The buyer pays 0.5% Stamp Duty Reserve Tax on the purchase of shares.
• No Double Taxation:
  • The proceeds go directly to you, avoiding Corporation Tax on the sale.

✅ Best for sellers who want a simple exit with lower tax rates.

🚩 Risk for buyers: They inherit all liabilities, including debts, legal claims, and tax obligations.

Related: Complete Guide to Buying a Business

Tax Treatment of an Asset Sale

An asset sale involves selling individual components of the business rather than the shares in the company itself. This means the buyer only acquires selected assets and does not take on the company’s existing liabilities. Rather than buying the business itself, an asset sale allows the buyer to purchase the individual assets that make up the business. So, think of equipment, inventory, property, or even intellectual property. What’s the benefit of this? Well, for the seller it might result in a higher tax liability due to the fact that the sale of the assets may trigger Capital Gains Tax, or potentially VAT.

For the buyer though, it means they avoid inheriting any liabilities or debts as they’re purely purchasing the assets of the business rather than shares. For this reason, it might be preferable to buyers, as they’ll also have the added bonus of being able to capitalise on capital allowances on the purchased assets, potentially lowering their taxable amount.

In the UK, different types of assets are taxed at different rates, which can make the tax implications slightly complex. Here’s how tangible and intangible assets are taxed in the UK for sellers:

• Tangible assets (e.g., machinery, vehicles, property) may be subject to CT on the difference between their sale price and the Tax written down value original purchase price. Buy 100k of machinery, you can claim a £mill worth of machinery.
• Intangible assets, such as goodwill or intellectual property, are also subject to CT. However, the tax treatment of intangible assets can vary depending on the specifics of the transaction and the company’s tax position.

Buyers may qualify for certain capital allowances, such as plant and machinery, fixtures and environmentally friendly equipment. This allows them to offset the purchase of certain assets against their income, reducing their overall tax liability and improving their return on investment.

However, for businesses structured as limited companies, the tax burden can sometimes be higher due to double taxation. How? The company initially pays tax on the sale of its assets, usually at the 25% Corporation Tax level. Then, when the proceeds are distributed to shareholders through dividends or liquidation, the shareholders may also face tax, either dividend tax or capital gains tax.

Key Tax Considerations for an Asset Sale:

• Corporation Tax (CT):

• • The company pays Corporation Tax (currently 25%) on any profits from the sale of assets.
  • If assets have appreciated in value, the company is taxed on the gain.

•  VAT:

  • If the business does not qualify as a Transfer of a Going Concern (TOGC), VAT may be charged on the sale, increasing costs for the buyer.

• Stamp Duty Land Tax (SDLT):

  • If property is included in the asset sale, the buyer may have to pay SDLT, which can range from 0% to 12%, depending on the value.

• Capital Allowances:

  • Buyers may benefit from capital allowances on purchased assets, potentially reducing their taxable income.

• Double Taxation Risk:

  • The company first pays Corporation Tax on asset sales.
  • When distributing the remaining proceeds to shareholders, they may be taxed again via Dividend Tax or CGT.

✅ Best for buyers who want to avoid inheriting business liabilities and can benefit from capital allowances.

🚩 Risk for sellers: Potentially higher tax burden due to double taxation.

Tax Planning Tips for Business Owners Before Selling

Selling a business is a major life event, and early tax planning can help you avoid unnecessary costs from the get-go. Here’s how to prepare:

1. Choose the Right Sale Structure – If you qualify for Business Asset Disposal Relief, a share sale is often more tax-efficient.
2. Plan in Advance – Start preparing at least a year before selling to ensure you can take advantage of reliefs and exemptions.
3. Understand Capital Allowances – If selling assets, work with the buyer to maximise their capital allowances, which can make your business more attractive.
4. Get Professional Advice – A tax advisor can help you structure the deal to reduce your tax burden and comply with HMRC requirements.

FAQs on Tax When Selling a Business

Do I pay taxes if I reinvest the sale proceeds?

If you reinvest the proceeds from selling a business asset into a new qualifying asset, you might be able to defer Capital Gains Tax (CGT) using Roll-Over Relief. This means instead of paying tax now, the gain is deducted from the cost of your new asset, delaying the tax bill until you sell that asset in the future. To qualify, you need to reinvest the proceeds within three years before or after the sale, and the assets must be used for business purposes. However, if you only reinvest part of the proceeds, you’ll still owe CGT on the amount not reinvested.

What tax do I have to pay when I sell fixed assets?

If you’ve claimed capital allowances (similar to depreciation deductions) on business assets like equipment or vehicles, you may have to pay tax on the amount you previously wrote off. This is known as balancing charges and applies when you sell an asset for more than its tax-written-down value. Essentially, HMRC “recaptures” the tax relief you’ve already benefited from, increasing your taxable profit. In simple terms, if you got tax benefits while using the asset but then sell it for a good price, you might need to repay some of those benefits through extra tax. The amount due depends on whether the asset qualifies for different capital allowances, so it’s worth reviewing this before selling.

The last word on the difference between stock and asset sales

Knowing the difference between a share sale and an asset sale is crucial when selling a business.

We’ve seen instances in the past where business owners have failed to understand the distinction, and honestly, the financial ramifications can be huge. So huge in fact, that it may put the sale in jeopardy.

Understanding this is the most important part of any acquisition, and both parties need to ensure they know the difference. A share sale is usually more tax-efficient for the seller, while an asset sale gives buyers more control over what they purchase, but it can lead to higher tax costs for the seller. Failure to understand the difference could result in you paying much more tax than you’d planned.

Whichever route you take, careful tax planning is essential and the earlier you consult a tax expert, the better positioned you’ll be to make a decision that minimises tax and maximises profit.

If you’d like to speak to our team about tax planning pre-sale, or maybe you’re just after some pointers on how to make your business more attractive to buyers, then get in touch.

If you’re thinking of selling your business and want to ensure you don’t overpay in tax, get in touch with our expert tax advisors today.