Tax planning before and after a business exit

"Plans are of little importance, but planning is essential."

Winston Churchill’s line fits business exits uncomfortably well, even if it was probably delivered with a cigar in one hand and something stronger than tea in the other. The route to a sale rarely unfolds as expected, with buyers changing their minds, prices moving around, and deadlines drifting in ways no spreadsheet quite anticipates.

By the time a deal is agreed, most of the tax outcome has already been set by decisions made years earlier, often without any exit in mind. Ownership structure, company setup, and eligibility for reliefs usually matter far more than anything you can still change once heads of terms are signed.

This article explains what tax planning really means before and after a UK business exit, focusing on the practical choices that decide how much of the sale price you actually keep.

Before the exit: planning and structuring for a tax-efficient sale

If there is one rule that matters more than all the others, it is this: start early.

By early, we mean the point where selling the business is still just a glint in your eye, dulled slightly by the long, sleep-deprived days spent getting the thing off the ground.

Once a deal is agreed, or even once heads of terms are on the table, your room for manoeuvre shrinks fast. At that point, trying to "tidy things up" can easily trigger tax charges rather than reduce them.

For business owners with significant value at stake, the sensible time to review your position is years in advance. That means looking closely at how the company is structured, who owns what, and whether you're actually set up to benefit from the reliefs you assume will apply.

What follows are the main areas worth getting right before completion. Done properly, they can make a material difference to how much of the sale price you end up keeping.

Key concepts and definitions

Term	What it means	Why it matters in an exit
Business Asset Disposal Relief (BADR)	A CGT relief that taxes qualifying gains at 14% (rising to 18% from April 2026) on up to £1m per person	Can save up to £100,000 per person – but only if certain conditions are met
Trading company	A business that mainly trades, rather than holding investments or cash	Too much non-trading activity can kill BADR eligibility
Share sale	You sell your shares directly to the buyer	Usually taxed once; often the most efficient route
Asset sale	The company sells its assets, then you extract the cash	Often taxed twice unless structured carefully
Heads of terms	A non-binding outline of the deal	Once signed, most tax planning options disappear
Earn-out	Part of the price is paid later if targets are met	Tax can arise before cash is received if not structured properly
Members’ Voluntary Liquidation (MVL)	A formal liquidation used to extract cash as capital	Can preserve capital treatment after an asset sale
Employee Ownership Trust (EOT)	A trust that buys a controlling stake for employees	Can halve CGT, but payment is usually spread over time
Business Relief	An inheritance tax relief for trading businesses	Often lost the moment the business is sold

Qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief)

If you're selling a business, Business Asset Disposal Relief is the tax break everyone hopes they qualify for.

Get it, and up to £1 million of qualifying gains are taxed at 14% under current 2025/26 rules. Miss it, and you're straight onto standard capital gains tax rates, which for higher and additional-rate taxpayers are up to 24% on most assets.

On a £1m gain, that difference alone can be worth up to £100,000. Not pocket change.

The catch is that BADR is fussy. You need to meet the conditions for at least two years right up to the point of sale.

If you're selling shares, the company must be a trading company rather than one carrying on non-trading activities to a substantial extent. You must be an employee or office holder, such as a director. And you need a meaningful stake – usually at least 5% of the shares, 5% of the voting rights, and a right to at least 5% of profits and assets, or sale proceeds. Being a small passive shareholder does not cut it.

There is one notable exception: shares acquired through an Enterprise Management Incentive scheme can qualify for BADR without meeting the 5% test, provided the options were granted at least two years before disposal.

If you're a sole trader or partner selling all or part of your business, the principle is similar. You generally need to have owned the business for at least two years to qualify.

Action point: check this well before a sale. People lose BADR for surprisingly mundane reasons: stepping down as a director too early, getting diluted below 5%, or allowing non-trading assets or activities to build up on the balance sheet. A pre-sale "BADR health check" from a tax adviser can spot these issues while there is still time to fix them.

Timing matters too. The BADR rate is due to rise from 14% to 18% from April 2026, further shrinking its value. If a sale is already on the horizon, completing before that date could mean a lower tax bill, assuming BADR applies and the disposal date falls before 6 April 2026. That said, it's not worth shoving an unready business onto the market just to save a few percentage points. The tax tail should not wag the deal.

Involve family shareholders early to multiply reliefs

One person selling a business gets one set of tax reliefs.

Two people selling the same business can get two.

That is the basic idea.

Business Asset Disposal Relief comes with a £1 million lifetime allowance per person – not per company. If ownership is shared properly and early enough, more than one family member can use it. Done right, that can mean a lot more of the sale price being taxed at 14% rather than the standard rates.

The key word is early. This is not something you fix a week before completion.

Spouses and civil partners

Transfers of shares between spouses or civil partners who are living together are usually treated on a "no gain, no loss" basis, so there is normally no immediate capital gains tax charge on the transfer. 

That makes spouses the easiest place to start.

However, BADR is claimed by individuals, and your spouse or civil partner will only qualify on a later sale if they meet the conditions in their own right. 

For a share sale, that generally means (as already mentioned above):

• Being an employee or office holder (such as a director)
• Owning at least 5% of the shares and voting rights, and being entitled to at least 5% of profits and net assets on a winding up, or at least 5% of the sale proceeds
• Meeting those conditions for at least two years before the sale.

If your partner already works in the business, or could sensibly be appointed as a director, bringing them in as a shareholder well in advance can be extremely effective.

BADR is capped at £1 million of qualifying gains per person over a lifetime. For disposals from 6 April 2025, it taxes those gains at 14% rather than the standard 24% capital gains rate often applied to higher-rate taxpayers, meaning a potential saving of up to £100,000 each if the full £1 million limit is available.

Even if the business is mostly "yours", giving your spouse a genuine minority stake and role two or more years ahead of an exit can spread the tax bill across the household rather than dumping it all on one person.

Adult children and other family members

Adult children can also be brought into the picture, but this is where things get more technical.

Unlike spouses, gifts of shares to children normally trigger capital gains tax as if you had sold them at market value. However, it may be possible to claim Gift Hold-Over Relief, but it generally applies only to certain business assets and to certain shares, such as shares in an unlisted trading company.

In simple terms, you do not pay CGT at the point of the gift. Instead, the gain is usually deferred, and the tax point is pushed to when the recipient later sells the shares.

That can work well if the child has little other income or gains, or if they are brought into the business properly and go on to qualify for BADR themselves. But the rules are strict, and the planning needs to be watertight.

A real-world lesson

A First-tier Tribunal case from a few years ago is sometimes cited as evidence that last-minute family share planning can work. In that case, parents gifted shares to their adult children only days before a third-party sale, and the planning was upheld.

But this is not a template to copy. The outcome depended on a very specific structure involving deferral reliefs and a share exchange, with the relief claimed on a later disposal after the children had held the buyer’s loan notes and shares and served as directors under the rules at the time.

Under today’s BADR rules, which generally require a two-year qualifying period for share sales, adding a new shareholder shortly before completion will usually not help. Late-stage tinkering tends to push you into complex, advice-heavy territory rather than straightforward tax savings.

The warning label

If you are going to involve family members, it's sensible to do it at least two years ahead of a sale with real roles and documentation of what it is they actually do. It should be a commercial decision that happens to be tax-efficient, not a tax decision looking for a business excuse.

Done properly, spreading ownership within the family can significantly reduce the overall tax bill. Done badly, it just creates a very expensive argument with HMRC.

Optimise the sale structure (shares vs assets)

How you sell the business matters almost as much as the price.

In broad terms, there are two routes. You either:

1. Sell the shares in your company, or
2. The company sells its assets and trade to the buyer.

From a seller's point of view, these are very different beasts.

Share sale: usually the clean win

In a share sale, you sell your shares and receive the money personally. You are taxed once, normally under capital gains tax. If you qualify for Business Asset Disposal Relief, the first £1 million of gains can be taxed at 14% under current rules.

This is why sellers usually prefer share sales: it's often the simpler and more tax-efficient way to go.

Asset sale: where tax can bite twice

In an asset sale, the company sells its assets. The company may pay corporation tax on any gains. Then, when you take the cash out of the company, you pay tax again, either as dividends or capital gains on liquidation.

Two layers of tax can mean in many cases a higher total bill.

Buyers sometimes push for asset purchases because they can cherry-pick what they want and avoid historic liabilities. That does not make it good news for you. If a share sale is possible, it is usually worth pushing for one, even if the buyer wants a small price adjustment to compensate for the extra risk.

If an asset sale is unavoidable

Sometimes the buyer simply will not buy shares. If that happens, you need a plan for getting the cash out tax-efficiently.

One route is a Members’ Voluntary Liquidation (MVL) after the asset sale. Once the company has sold its assets and paid corporation tax, the remaining cash is distributed to shareholders as capital rather than income.

If the liquidation happens within three years of the company stopping trading, those distributions can qualify for BADR, assuming all the other conditions are met (explained above).

That can turn what might otherwise be taxed as dividends (income) into a capital distribution taxed under capital gains rules, potentially at 14% if BADR applies.

MVLs must be done properly, using a licensed liquidator, and they come with strings attached.

In particular, there are anti-phoenixing rules. If you shut one company and then start a very similar business within two years ("rising from the ashes" of the previous one), HMRC can reclassify the liquidation proceeds as income and tax them accordingly.

If there is any chance of that, get advice before you go anywhere near this route.

Property and other awkward assets

Many owners also own assets outside the company, especially property.

If you own the business premises personally, you usually have two choices:

1. Sell it alongside the company, or
2. Keep it and rent it to the buyer.

If you sell the property alongside your shares, Business Asset Disposal Relief can sometimes apply to the property gain as an "associated disposal", provided the conditions are met.

Broadly, you must have owned the property for at least three years and it must have been used for the purposes of the business throughout the two years leading up to the sale. Flag it early with your adviser if this applies to you.

If you keep the property and become a landlord, remember what changes. Rental income is taxed as income, and the property may no longer qualify for business inheritance tax relief once it is just an investment property rather than being used in the trade. That is more of a post-exit issue, but it should be part of the wider plan.

Selling your business? Here's what to do before the money lands

Earn-outs and deferred payments

Not every deal is paid fully in cash on day one.

Earn-outs, loan notes, instalments, and shares in the buyer all have tax consequences. In some cases, you may have to pay tax before you receive the cash.

In others, tax can be deferred, but only if the paperwork is done properly.

The difference between one type of loan note and another can decide whether tax is paid now or years later. Whether BADR applies to deferred consideration can hinge on choices made at the time of sale.

The rule here is simple. If the deal is not a straight cash sale, do not guess. Get advice before you sign anything.

The big picture

The aim is to maximise capital treatment and minimise amounts taxed as income. Selling shares usually achieves that.

If your company has excess cash or non-trading assets, it may be worth tidying these up well before a sale. Sometimes paying some tax early is better than letting surplus assets derail a share sale, reduce the price, or jeopardise reliefs.

Done early, it can materially improve what you keep. Left too late, the structure will decide for you.

Considering an Employee Ownership Trust as an exit route

Most business exits involve selling to an external buyer. A competitor, a private equity fund, or someone who promises continuity and then immediately changes everything, which tends to matter less once you are reclining on a beach with a drink and no Slack notifications.

There is another route that works very differently: you sell the business to your employees. All stand for the Soviet Union national anthem.

This is done through an Employee Ownership Trust (EOT), and the reason it gets attention is simple. A qualifying sale to an EOT can cut the capital gains tax you owe in half. Compared with paying 14% or 24%, that represents a potential bargain.

How it works

An EOT is a trust that owns a controlling stake in the company on behalf of all employees. If you sell more than half the shares to the trust and meet the conditions, the gain on that sale attracts only 50% of the capital gains tax it otherwise would have.

The structure is well established and deliberately encouraged by government policy. The John Lewis model is the best-known example, but private company exits now use it routinely.

The downside is the trust usually does not have the funds to pay you upfront. Instead, the purchase is funded over time from future company profits, often with the seller leaving money in the business as a loan that is repaid gradually. You still get paid, but patience is required.

What you give up

To qualify, control must genuinely pass to the trust. Employees must benefit on a broad and fair basis. Former owners and their families cannot retain special rights, tacit veto powers, or preferential treatment.

Because of this, EOTs tend to suit owners who care about continuity, culture, and employee outcomes, rather than squeezing out the highest possible headline price. Valuations are often lower than those offered by strategic buyers, but the tax saving can narrow the gap significantly, and sometimes reverse it.

Employees can also receive tax-free bonuses of up to £3,600 a year, which tends to focus minds once the ownership structure changes.

This is not a loophole

The rules have been tightened in recent years to prevent abuse, and HMRC expects the trust to be real, not decorative. The tax exemption used to be 100%, but as of 26 November 2025 was slashed in half to 50%. If this route appeals, it needs time. Valuations, trust setup, legal work, and clear communication with staff all come first.

Professional advice and "no regrets" planning

Exit tax planning is not something you do on your own, or at the last minute.

Business sales sit in a thicket of rules, reliefs, and conditions, and many of the big ones only work if you line them up early. A good tax adviser can spot problems you did not realise you were creating, and opportunities you did not know existed.

They also make sure the paperwork is done properly – not with a half-spent biro from the bottom drawer and 20 minutes of self-guided study.

Timing is everything. Once you are negotiating with a buyer, or worse, signing Heads of Terms, your freedom to act drops sharply. Many steps, such as transferring shares to a spouse, funding pensions, or choosing an Employee Ownership Trust route, need to happen before a sale is on the table.

Do them afterwards and HMRC may argue they were part of a single tax-driven plan.

The simple rule is this: get your house in order before inviting buyers round. It is cleaner, safer, and far less stressful when due diligence begins.

Once the deal is done, there are no rewinds. You cannot retroactively qualify for a relief you missed, or undo a structure that dropped you in hot water with the taxman. 

That groundwork sets up the next question, which is what to do once the money is yours, and how to protect it from tax going forward.

After the exit: managing your money and the tax bill

Once the business is sold, the problem changes.

You are no longer running a company. You are now like a dragon sitting upon a large, liquid pile of gold, and HMRC now cares less about one big capital gain and more about what that money earns, every year, for the rest of your life.

The aim post-exit is to keep more of what the money makes, and stop it leaking away through avoidable tax.

Investing without donating too much to HMRC

Whatever you do next, your investments will throw off income or gains. Interest, dividends, rent, price growth – all of which is taxable unless you plan around it.

Le'’s start with the obvious shelters.

ISAs remain a no-brainer. £20,000 per year, completely free of income tax and capital gains tax. On day one, it may feel trivial next to a seven-figure exit. Over time, it becomes one of the most valuable shelters you have, especially if you have a spouse and use both allowances every year.

Pensions still matter after the sale. If you do any paid work at all, you may be able to keep contributing, and even without earnings you can still pay in £3,600 gross each year and get basic rate tax relief.

There is no longer a lifetime allowance cap, and pensions currently are one of the cleanest inheritance tax shelters available, although the rules are changing from April 2027. Money you do not need soon often belongs here.

Income versus growth, and why it matters

Post-exit portfolios often generate more income than people expect. Interest and dividends are taxed every year, whether you need the cash or not.

Capital growth is different. It is taxed later, when you choose to sell, and sometimes at lower rates.

That is why advisers may tilt exited founders towards growth-focused investments rather than high-yield ones, unless regular income is genuinely needed. Deferring tax is not the same as avoiding it, but timing alone can make a large difference.

Ownership matters too. Assets can be held between spouses CGT-free, so income-heavy investments often make more sense in the name of the lower-taxed partner.

More specialist tools

Some people use investment bonds to control the timing of tax, particularly if they expect to be in a lower tax band later or may live abroad.

Tax is not assessed year by year in the way it is with most investments. Instead, gains are usually considered for tax when certain events occur, such as withdrawals or closing the bond. These are complex products with layered charges, so advice is essential.

Others look at EIS, SEIS, or VCTs, especially if the sale has created a large income tax bill. These schemes can offer generous income tax relief and, in the case of EIS, capital gains deferral and inheritance tax advantages if they qualify for Business Relief.

The trade-off is risk – not “it might drizzle during the picnic” level risk, but more “do not touch without a hazmat suit”. These are investments in small, often unproven companies, and they should only ever be a small slice of a portfolio.

Family Investment Companies

For larger exits, advisers sometimes suggest a Family Investment Company (FIC). This is a private company set up to hold and invest family wealth. Profits are taxed inside the company first.

If you later take money out for personal spending, further tax can apply. So this is not a simple swap from personal tax to company tax.

With careful share structures, future growth can be directed to children while you retain control. It adds cost and admin, but used over long periods, it can improve the family’s overall after-tax outcome.

Life after the sale: taking income without tripping over tax

Once the money is invested, the next question is how to live on it.

This is often the first time you are not paying yourself a salary or dividends from a business you control, which probably feels odd at first – like opening a tap and being asked to pick a temperature, pressure, and time limit.

The upside is flexibility: you get to choose when, and from where, you take money. That unlocks an arsenal of weapons to be used against the taxman. 

Spend boring money first

In the early years after a sale, many people hold a chunk of cash or low-yield assets for stability. Using that money to fund day-to-day spending can be more tax-efficient than forcing investments to produce income you then pay 40%+ tax on.

To put it simply, living partly off capital can be cheaper than manufacturing taxable income, especially while you let growth assets diligently compound in the background.

Use allowances on purpose

If your income is low, make use of it.

The personal allowance lets you take £12,570 income tax-free, assuming you keep total income below the £100,000 taper point. That could be interest, pension drawdown, or other income. The point is to use it deliberately, not accidentally waste it.

Capital gains allowances are now small at £3,000, but they still exist. Each year, it is worth asking whether realising a modest gain now is better than letting everything pile up for a later tax bill.

If one spouse has lower income, gains often make more sense in their name.

This is all just basic financial housekeeping.

Watch the nasty thresholds

Certain income bands hurt more than others. Around £100,000, the personal allowance starts disappearing. By £125,140, it is gone completely, creating an effective 60% marginal rate in that band.

If you control timing, spreading income across tax years can help. A deferred payment in April rather than March can make a real difference.

Working again changes the picture

Many founders do not retire. Consulting, non-executive roles, or new ventures can all be tempting options to keep you from wasting away in front of daytime television.

If you earn again, pensions come back into play, and there may be scope to structure income sensibly. Just remember that tax rules for contractors and personal service companies still apply, and everything needs to be reported properly. 

Thinking about leaving the UK

Some people consider moving abroad after a sale. That can work, but only if it is genuine and long-term.

The UK’s temporary non-residence rules are designed to catch short departures. In quick-and-dirty terms, if you leave the UK, sell assets, and then return within around five tax years HMRC may still seek to tax those gains.

A brief stint overseas to dodge tax rarely ends well. If this is on your radar, specialist advice is essential and timing matters.

Inheritance tax: stopping the exit turning into a 40% haircut

Selling a business changes the inheritance tax picture.

While you owned a trading company, it may well have qualified for Business Relief, meaning it could pass largely free of inheritance tax. Once you sell, that protection disappears. Cash, shares, and investment portfolios do not get the same automatic relief, so a successful exit can turn an IHT-friendly asset into a fully taxable estate.

Do nothing, and up to 40% of that wealth above available thresholds could eventually go to HMRC.

That does not mean you should avoid selling. It does mean you should plan.

Recycling Business Relief

There is a replacement property rule that can help preserve Business Relief.

If you sell a Business Relief-qualifying asset and reinvest into another qualifying business asset, the relief can sometimes carry over. The test is based on how long you owned the old and new assets taken together, assessed over a five-year period, rather than starting the clock again from zero.

In practice, this often means reinvesting part of the proceeds into unquoted trading companies or qualifying AIM shares.

If they are held for at least two years and still owned at death, that portion of the estate can qualify for Business Relief and fall outside inheritance tax.

Keep in mind that these are smaller, more volatile businesses, not cash in the bank. Many people use this approach for money they intend to pass on rather than spend.

Giving while you are alive

Lifetime gifts are the bluntest and most effective IHT tool.

Gifts to a spouse are always tax-free. Gifts to anyone else fall out of your estate completely if you survive seven years. There is no upper limit. The only rule is that the gift must be real. If you give something away but keep the benefit, HMRC will still treat it as yours.

This starts the clock running, which is why many people regret not doing it earlier.

Trusts: control comes at a price

Trusts still have a role, but they are no longer cheap.

You can transfer up to £325,000 into a discretionary trust without an immediate inheritance tax charge, provided you have not used that allowance elsewhere. Above that, a 20% entry charge can apply, with further charges over time.

The upside is control and protection for beneficiaries. The downside is complexity and tax friction.

Spouses, bands, and thresholds

Married couples can combine nil-rate bands and residence nil-rate bands, which can shelter up to £1 million in total. Large exits can push estates over the £2 million threshold where the residence band starts to disappear, so lifetime gifts can sometimes preserve it.

Charity, if it fits

Gifts to charity are always IHT-free, and leaving at least 10% of your estate to charity reduces the IHT rate on the rest from 40% to 36%.

It might not suit everyone, but for some estates it improves outcomes and could give St. Peter a reason to nod approvingly. 

Ongoing advice (and staying on HMRC’s good side)

Life after a business sale is, sadly, not always more straightforward. It can end up being complicated in new and more expensive ways.

At this point, having the right people around you matters. Most exited founders end up with some mix of a financial planner to help invest and plan income, a tax adviser to keep filings straight and spot rule changes, and a solicitor to handle wills or any trust structures.

You do not need a palace of advisers, but you do need the competence that only experts can provide.

Stay boringly compliant

After an exit, HMRC suddenly expects more detail from you.

Capital gains must still be reported, even if most of the gain qualified for relief. Investment income needs tracking. Overseas assets and accounts need declaring. Deadlines still exist, and HMRC still charges interest when they are missed.

If you deferred tax through things like EIS, earn-outs, or loan notes, keep records. Deferred does not mean “lost to the mists of time”. At some point, those gains resurface unless they are legitimately wiped out, and it is easy to lose track without a written record.

Bottom line

Churchill was right. The plan will almost certainly change, but thinking ahead is indispensable when it comes to minimising the tax bill.

By the time a business is sold, the tax result is rarely shaped by clever last-minute moves. It is instead shaped by earlier choices about ownership, structure, timing, and whether you took advice before you had to. Get those right and you keep more of what you built. Get them wrong and the taxman becomes an uninvited guest at the feast – and he’s brought Tupperware.

Good exit planning recognises that surprises are inevitable, and aims to ensure that none of them arrive in a brown envelope from HMRC.

Using an auto-enrolled work-based pension?

The fund you're contributing to might not be right for you

Send the info