Selling Your Business — UK Exit Planning

BADR, asset vs share sale, MVL, and pension planning before exit

Since 30 October 2024, general CGT rates are 18% (basic-rate) and 24% (higher-rate). Business Asset Disposal Relief (BADR) taxes qualifying gains at 14% in 2025/26 and 18% from April 2026, with a £1 million lifetime cap. Sellers nearly always prefer a share sale (single CGT charge, BADR possible) while buyers prefer an asset sale (higher future deductions). For solvent companies with significant retained profits, a Members' Voluntary Liquidation converts dividends into capital treatment — but the TAAR phoenixism rule can claw it back if you start a similar trade within 2 years.

Last reviewed: 26 May 2026

Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

Business Asset Disposal Relief (BADR)

BADR (formerly Entrepreneurs' Relief) is the most important relief for business sellers. It caps the CGT rate on qualifying gains at 14% in 2025/26, rising to 18% from April 2026.

Qualifying conditions

You must have owned the business or 5% of the shares for at least 2 years up to the date of disposal (TCGA 1992 ss.169H-169S). The company must be a trading company (not an investment company). You must be an officer or employee. The relief must be actively claimed on your tax return — it is not automatic.

Lifetime cap

The £1 million lifetime cap was introduced in March 2020. Prior to that it was £10 million. If you used BADR before March 2020, that usage counts against the £1m cap. The cap is per person, not per disposal.

Rate path

10% until 6 April 2025. 14% for 2025/26. 18% from April 2026. The rate at disposal determines the tax, not the rate at acquisition. So a disposal in March 2026 pays 14%; a disposal in May 2026 pays 18%.

Goodwill treatment

Goodwill is the value of the business beyond its tangible assets — customer relationships, brand, reputation, contracts.

Nil base cost for organic goodwill

Goodwill created internally has nil base cost for CGT purposes. On a share sale, the goodwill is wrapped into the share value and BADR may apply. On an asset sale, the company recognises a gain on goodwill with no base cost offset — a harsh tax result.

FA 2015 s.37

For related-party transfers (e.g. sole trader incorporates and transfers goodwill to their Ltd company), FA 2015 s.37 prevents amortisation of the goodwill in the company. This killed the incorporation goodwill shelter. For arm's-length acquisitions, CTA 2009 Part 8 allows amortisation over a useful economic life.

Earn-outs and deferred consideration

Earn-outs link part of the sale price to future performance. The tax treatment depends on how the sale and purchase agreement (SPA) is drafted.

TCGA 1992 s.48A

Section 48A treats earn-out consideration as part of the disposal proceeds, with the right to claim further relief if the earn-out underperforms. The key case is Marren v Ingles [1980] AC 551: the right to future consideration is itself an asset, valued at disposal.

SPA drafting

If the earn-out is 'ascertainable' (fixed formula), it is part of the initial disposal. If 'unascertainable' (dependent on future events), it is a separate asset. The drafting determines when CGT is payable and whether BADR applies. Professional tax advice on the SPA is essential.

EIS/SEIS reinvestment relief

Reinvesting sale proceeds into qualifying EIS or SEIS companies can defer or exempt CGT.

EIS deferral

TCGA 1992 ss.150A-150C. Invest the gain in EIS shares within 1 year before or 3 years after the disposal. The gain is deferred until you dispose of the EIS shares. No limit on the deferred amount. Must hold for at least 3 years.

SEIS 50% exemption

SEIS offers 50% exemption (not deferral) on up to £100,000 of investment per year. The exemption is permanent, not deferred. Combined with EIS deferral on the balance, this is a powerful stack for gains up to ~£200k.

CGT payment and reporting

The 60-day CGT reporting rule (introduced April 2020) applies to UK residential property only. Business disposals are reported via Self Assessment.

☐Report the gain in the SA108 Capital Gains Tax summary
☐Payment due by 31 January following the end of the tax year of disposal
☐If disposal is in 2025/26, report by 31 January 2027
☐BADR must be claimed in the return — it is not automatic
☐Keep the SPA, completion statement, and professional valuations for 6 years

Company purchase of own shares

CTA 2010 Part 23 allows a company to buy back its own shares from a shareholder, with capital treatment instead of income treatment if conditions are met.

Conditions

The shareholder must have owned the shares for 5 years. The purchase must result in a 'substantial reduction' of the shareholder's interest (typically 75% reduction). The purchase must benefit the company's trade (e.g. removing a retiring director).

HMRC advance clearance

You can apply to HMRC for advance clearance (form CG34) that the capital treatment will apply. This is strongly recommended — it removes uncertainty and protects against later reclassification.

Members' Voluntary Liquidation

An MVL is the solvent winding-up of a Ltd company, converting distributable reserves from dividend treatment (8.75–39.35%) to capital treatment (18/24% or 14% with BADR).

Process

Directors sign a Declaration of Solvency (sworn before a solicitor, £50–£100). Appoint an insolvency practitioner (IP) as liquidator. IP realises assets, pays creditors, distributes surplus to shareholders. Process takes 3–12 months.

Costs

IP fees: £2,000–£5,000+. Solicitor: £200–£500. Total typically £3,000–£7,000. Worthwhile only if distributable reserves exceed roughly £25,000 — below that, a strike-off is cheaper.

TAAR — the phoenixism trap

ITTOIA 2005 s.396B (the TAAR) taxes the distribution as income if, within 2 years, you are involved in a similar trade. 'Involved' includes sole trader, partner, or director/shareholder of a similar company. The 2-year clock starts from the final distribution. Do not plan an MVL if you intend to start a similar business within 2 years.

Pension funding pre-exit

Maximising pension contributions before exit is one of the most tax-efficient preparatory steps.

Annual allowance and carry forward

£60,000 annual allowance for 2025/26. Unused allowance carries forward for 3 years. If you have £30k unused from 2022/23, £30k from 2023/24, and £30k from 2024/25, you could contribute £150,000 in 2025/26. Tapered annual allowance applies if adjusted income exceeds £260,000.

Employer contributions

Employer pension contributions are CT-deductible in the accounting period they are paid. For a company with a 31 March year-end, a contribution in March 2026 reduces CT for the year ended March 2026. Timing matters: pay before cessation of trade to ensure deductibility.

Notifying HMRC

Closing a business requires multiple notifications, depending on structure.

☐Sole trader: file final Self Assessment, tick ' ceased trading' box, notify HMRC by 5 October after cessation
☐VAT registered: deregister within 30 days of cessation, final VAT return to date of deregistration
☐Ltd company: final CT600 within 12 months of accounting period end, strike off via DS01 or MVL via IP
☐PAYE scheme: close scheme via HMRC online, final FPS and EPS
☐Companies House: file final confirmation statement, dissolve via DS01 or allow strike-off after 2 months inactivity

Strike-off vs MVL vs CVL

The three ways to end a company, ordered by solvency and cost.

Company closure methods compared

Method	Solvency	Cost	Tax treatment	Director risk
Strike-off (DS01)	Solvent, <£25k reserves	£10–£100	Dividend tax on distribution	Low — if done properly
MVL	Solvent, >£25k reserves	£3,000–£7,000	Capital treatment (BADR possible)	Medium — TAAR risk
CVL	Insolvent	£3,000–£10,000+	N/A — creditors paid first	High — wrongful trading, disqualification

Terminal loss relief

If your final year of trading produces a loss, you can carry it back against profits of previous years.

Sole traders — ITA 2007 s.89

Terminal losses can be carried back 3 years on a LIFO basis (last in, first out). The loss is set against profits of the same trade. If the loss exceeds 3 years of profits, the excess is lost. The claim must be made within 4 years of the end of the tax year of the loss.

Companies — CTA 2010 s.39

Trading losses in the final 12 months can be carried back 3 years against total profits of the same trade. The loss is set against the most recent year first. The company must have carried on the same trade.

Capital losses

Capital losses on business assets can reduce your CGT bill.

Offset and carry forward

Capital losses offset against gains in the same tax year. Unused losses carry forward indefinitely. They cannot be carried back (except on death, where they are lost).

EIS/SEIS shares

Losses on EIS or SEIS shares can be offset against income (not just capital gains) in the tax year of disposal or the previous year. This is a rare and valuable relief — most capital losses only offset capital gains.

Bounce Back Loans

If your company took a Bounce Back Loan (BBL) during COVID-19, the status of the loan at closure matters.

No personal liability

The BBL was 100% government-guaranteed. Directors have no personal liability unless they used the loan fraudulently (e.g. diverted to personal use). HMRC and the British Business Bank have stated they will not pursue directors personally for legitimate business use.

CVL not strike-off

If the company is insolvent and cannot repay the BBL, you must use a Creditors' Voluntary Liquidation (CVL), not a strike-off. A strike-off with outstanding BBL debt will be blocked by the British Business Bank and may trigger director disqualification proceedings.

Director disqualification

The Company Directors Disqualification Act 1986 (CDDA 1986) allows the court to disqualify directors who have behaved improperly.

Wrongful trading — s.214 Insolvency Act 1986

Wrongful trading occurs when directors continue trading knowing the company cannot avoid insolvency. If found liable, directors can be personally liable for company debts from the point they knew or should have known. Disqualification: 2–15 years.

Fraudulent trading

Fraudulent trading (s.213) is carrying on business with intent to defraud creditors. This is a criminal offence, not just civil. Directors can face personal liability, disqualification, and imprisonment.

Starting again

After closure, the tax treatment of your next venture depends on how the previous one ended.

Sole trader losses

If you ceased as a sole trader and start again within the same tax year, you can carry forward trading losses against new profits of the same trade. If the new trade is different, losses are lost.

Company losses

Trading losses in a company die with the company. They cannot be transferred to a new company or to you personally. The only exception is within a group structure (surrender under CTA 2010 s.937).

Personal credit

Company insolvency does not directly affect your personal credit file unless you gave personal guarantees (common with bank loans, rare with BBLs). However, a previous CVL or disqualification will appear on director checks and may affect future appointments.

Statute references: TCGA 1992 ss.169H-169S; TCGA 1992 s.48A; CTA 2010 Part 23; ITTOIA 2005 s.396B; ITA 2007 s.89; Insolvency Act 1986.

Frequently asked questions

What happens if I miss the Self Assessment deadline?+

The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.

Do I need an accountant or can I file Self Assessment myself?+

Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.

How do payments on account work?+

When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.

Asset sale or share sale — which is better for the seller?+

Almost always a share sale. On an asset sale, the company pays corporation tax on the gain (19–25%), then you pay tax again to extract the proceeds (dividend tax at 8.75–39.35%). That's double taxation. On a share sale, you pay CGT once at 18/24% or 14% with BADR. The buyer prefers an asset sale because they get higher future capital allowances and no inherited liabilities. The tax wedge is a negotiation point: sellers often accept a lower headline price for a share sale because the net proceeds can still exceed an asset sale after tax.

What is the TAAR phoenixism rule?+

The Targeted Anti-Avoidance Rule (ITTOIA 2005 s.396B) claws back capital treatment on an MVL if, within 2 years, you are involved in a similar trade or company. 'Involved' means as a sole trader, partner, or shareholder/director of a company carrying on the same or similar trade. The rule applies if you had 5% or more of the shares, the company was a close company, and the main purpose (or one of the main purposes) of the winding-up was tax reduction. If caught, the distribution is taxed as income (dividend tax rates) not capital. The 2-year clock starts from the date of the final distribution.

Can I defer CGT by reinvesting in an EIS company?+

Yes. EIS reinvestment relief (TCGA 1992 ss.150A-150C) lets you defer capital gains by investing the gain in qualifying EIS shares within 1 year before or 3 years after the disposal. The deferred gain crystallises when you dispose of the EIS shares. SEIS offers 50% exemption (not deferral) on up to £100,000 of investment. Both require the company to be unquoted, UK-resident, trading (not investing), and less than 7 years old (or under £15m gross assets). EIS deferral is particularly useful if you've exhausted your BADR lifetime cap or if the gain exceeds the cap.

Should I max pension contributions before selling?+

Usually yes. Employer pension contributions are corporation-tax deductible (saving 19–25%) and reduce the company's distributable reserves, making an MVL less necessary. For sole traders, personal pension contributions attract tax relief at your marginal rate (up to 45%) and reduce adjusted net income, which can help if you're in the £100k personal allowance taper. The annual allowance is £60,000 with 3-year carry-forward. If your exit is planned, front-loading pension contributions in the years before sale is one of the most tax-efficient preparatory steps. Be aware of the lifetime allowance — while the charge was abolished in April 2024, the lump sum allowance (£268,275) and lump sum death benefit allowance still cap tax-free extraction.