Home / Blog / Selling Your Limited Company: Tax on Exit and Business Asset Disposal Relief
Last updated 23 October 2026. Written by the Limited Company Accountant UK team, part of Accotax. Figures are for the 2026/27 tax year; always check GOV.UK for the latest rates.
Short answer: If you sell the shares in your limited company, you pay Capital Gains Tax on the gain, not income tax. Business Asset Disposal Relief can reduce the rate to 18% on the first £1 million of qualifying gains from April 2026, compared with the standard 18% or 24% rates, so planning the sale and meeting the two-year conditions is important.
Key facts
| Business Asset Disposal Relief rate | 18% from 6 April 2026 |
|---|---|
| Lifetime limit | £1 million of qualifying gains |
| Standard CGT rates on shares | 18% and 24% |
| Annual exempt amount | £3,000 |
| Qualifying period | At least two years before sale |
- The three main ways to exit
- Selling the shares
- Business Asset Disposal Relief
- Asset sales and extracting the money
- Liquidation and the targeted anti-avoidance rule
- Planning before you sell
- What to do next
- A worked example of a share sale
- Earn-outs, deferred consideration and warranties
- Frequently asked questions
The three main ways to exit
When you want to leave your company, there are three common routes. You can sell the shares to a buyer, who takes over the company with its assets, contracts and liabilities. You can sell the company’s assets and business, leaving the company as an empty shell. Or you can close the company and extract its funds through a liquidation or a strike-off.
Each route has a different tax effect, and the best one depends on the value of the company, the buyer’s wishes and your own tax position. Talk to your accountant well before you start negotiations, because the structure of the deal affects the tax far more than the price alone.
Selling the shares
A share sale is usually the simplest for the seller. The gain is the sale price minus what you paid for the shares, plus allowable costs. You pay Capital Gains Tax on that gain, after your annual exempt amount of £3,000. The company is not involved in the tax, and the buyer takes on the company as it is.
For shares that do not qualify for any relief, CGT is charged at 18% for basic rate taxpayers and 24% for higher rate taxpayers, depending on the size of the gain. These are lower than the top rates of income tax, which is why a share sale is generally attractive.
Business Asset Disposal Relief
Business Asset Disposal Relief, formerly Entrepreneurs’ Relief, reduces the tax on qualifying gains. It applies to the first £1 million of lifetime gains. The rate was 10% for many years, then 14% for 2025/26, and rises to 18% from 6 April 2026, so it is now the same as the lower standard rate, with the advantage for higher rate taxpayers who would otherwise pay 24%.
To qualify, you must hold at least 5% of the ordinary share capital and voting rights, be an officer or employee of the company, and meet these conditions for at least two years before the sale. The company must be a trading company, not an investment company. Keep evidence that the conditions are met, and claim the relief on your Self Assessment return.
Asset sales and extracting the money
In an asset sale, the company sells its business assets, goodwill or contracts. The company pays Corporation Tax on any gain, and then you must get the money out. That can mean a dividend, taxed at up to 39.35%, or a liquidation, which treats distributions as capital.
This double layer of tax is why most owner-managers prefer a share sale. Buyers sometimes prefer an asset purchase for risk reasons, so the sale price may need to reflect the difference in tax cost to you.
Liquidation and the targeted anti-avoidance rule
If you close a solvent company by a members’ voluntary liquidation, the distributions you receive are generally treated as capital, so CGT applies instead of dividend tax. Business Asset Disposal Relief can apply if the conditions are met.
HMRC has a targeted anti-avoidance rule to stop people liquidating a company and then carrying on the same business in a new company, known as phoenixing. If you start a similar trade within two years, the distributions may be taxed as income. Take advice before closing a company where you plan to continue similar work.
Want this handled for you?
Fixed monthly fee, named accountant, free first consultation. Get a free quote or call 0203 4411 258.
Planning before you sell
The best results come from planning at least a year or two before a sale. Review your share structure and the status of the company as a trading company. Consider whether a spouse’s shareholding could use their CGT allowance and lower rate bands, and whether pension contributions before the sale could shelter some of the profit.
A buyer will carry out due diligence, so make sure your accounts, filings and contracts are in good order. A clean record often leads to a better price, and a smoother sale.
What to do next
Start by asking for a valuation and a tax projection. Compare the net proceeds from a share sale, an asset sale and a liquidation. Check the conditions for relief, and make sure you keep the evidence. Then agree the heads of terms with the buyer, with tax advice taken before signing.
Because the figures can be large, a professional review is worth far more than it costs. The tax rates and reliefs also change, so use up-to-date information when you plan.
A worked example of a share sale
Suppose you started your company for £100 of share capital and sell all the shares for £600,000. The gain is £599,900. After your annual exempt amount of £3,000, the taxable gain is £596,900. If you qualify for Business Asset Disposal Relief, the whole gain is below the £1 million lifetime limit, so the tax at 18% is about £107,442.
Without the relief, the first slice of the gain that falls in the basic rate band would be taxed at 18% and the rest at 24%, so the tax would be higher, approximately £132,000 or more, depending on your other income. The relief is therefore worth tens of thousands of pounds, provided the conditions are met, which is why planning early matters.
Earn-outs, deferred consideration and warranties
Many sales do not pay the full price on day one. An earn-out ties part of the price to future performance, and deferred consideration is paid later. For capital gains purposes, the right to the future payment is valued at the date of sale and taxed then, even though you have not been paid. Specialists can structure the payment to reduce the tax cash flow problem.
The buyer will also ask for warranties and indemnities, which are promises that the company is as described. A claim under a warranty can reduce the price, so understand your exposure. Get legal advice alongside your tax advice before signing, because these details can change the real value of the deal.
The bottom line
If you sell the shares in your limited company, you pay Capital Gains Tax on the gain, not income tax. If you would rather not do it alone, our fixed fees start at £45.83 + VAT a month.
Frequently asked questions
What tax do I pay when I sell my limited company?
If you sell the shares, you pay Capital Gains Tax on the gain, at 18% or 24% or at 18% with Business Asset Disposal Relief on up to £1 million of lifetime gains. In an asset sale, the company pays Corporation Tax and you pay tax on extracting the cash.
What is the Business Asset Disposal Relief rate?
The rate is 18% from 6 April 2026, on a lifetime limit of £1 million of qualifying gains, if you meet the conditions for at least two years before the sale.
Can I claim Business Asset Disposal Relief if I own less than 5%?
No. You need at least 5% of the ordinary share capital and voting rights, as well as being an officer or employee of the company.
Is it better to sell shares or assets?
For the seller, a share sale is usually more tax-efficient because only one layer of tax applies. Buyers often prefer assets, so the final structure is a negotiation.
When do I pay the Capital Gains Tax?
Report and pay UK property gains within 60 days, but for shares you normally report on your Self Assessment return and pay by 31 January following the tax year of sale.
Do I pay income tax when I sell my company?
Not normally. A share sale produces a capital gain, which is charged to Capital Gains Tax. Income tax applies if you extract money from the company as dividends or salary beforehand.
Can my spouse benefit from the sale?
If your spouse genuinely owns shares, their gain is taxed on them, using their own annual exempt amount and lower rate bands. The shares must be a real gift made well before the sale.
Ready for a fixed monthly price?
Our packages start at £45.83 + VAT and cover accounts, tax and deadlines. Get a free quote or call 0203 4411 258.
Keep reading