Selling a business can be an exciting milestone for self-employed workers and sole traders in the UK. But whether you're retiring, moving onto a new venture, or simply looking to cash in on your hard work, it's important to understand the tax implications involved with this type of sale. 

In today’s article, we'll walk you through the tax you may be liable for when selling a business in the UK - as well as the tax relief that you could be eligible for. 

The main type of tax you need to understand when selling your business is Capital Gains Tax (CGT): 

What is Capital Gains Tax? 

When you sell your business, you may be required to pay Capital Gains Tax on any profit made from the sale. The CGT rate typically depends on your overall income and the amount of profit you’ve earned from the sale. For the 2026/27 tax year, the rates are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. 

You’ll normally report a gain from selling a business through Self Assessment. The separate ‘real time’ Capital Gains Tax service is generally used for gains from UK residential property rather than a business business sale.

The good news is that the UK offers Business Asset Disposal Relief (which was previously called ‘Entrepreneurs’ Relief’), which reduces the CGT rate to a flat 18% on the first £1 million of qualifying gains. We’ll break this relief down later in the article - and explore some other tax relief options that you may be able to benefit from.

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Do you pay tax when you sell a business?

You may have to pay Capital Gains Tax when you sell a business, but you do not normally pay CGT on the full amount you receive from the sale. Instead, CGT is generally charged on the gain you make.

The gain is broadly the difference between what you paid for the asset or business and what you sell it for, after taking into account any allowable costs and reliefs.

The amount of tax you pay will depend on your taxable income, the size of your gain, your available Capital Gains Tax allowance and whether you qualify for any tax reliefs.

How much tax do you pay when selling a business?

For the 2026/27 tax year, most individuals pay Capital Gains Tax at 18% or 24%, depending on how much of their gain falls within their basic rate Income Tax band. The Annual Exempt Amount is £3,000.

If you qualify for Business Asset Disposal Relief, qualifying gains are taxed at 18%. The lifetime limit for gains qualifying for BADR is £1 million.

For example, if you made a £100,000 taxable gain and all of it qualified for BADR, the CGT due would be £17,460 after applying the £3,000 Annual Exempt Amount, assuming you had not used any of your BADR lifetime limit and had no other gains or losses affecting the calculation. 

If you want to see how much Capital Gains Tax you might pay in your circumstances, check out our helpful free Capital Gains Tax calculator. You just input your gains, click the type of gain, and include any PAYE or Sole Trader income and you’ll get an estimated figure instantly. 

How is Capital Gains Tax calculated when selling a business?

The amount you sell your business for is not necessarily the amount you pay Capital Gains Tax on. You first need to work out your gain and then apply any allowable costs, losses, tax-free allowance and relevant reliefs.

Broadly, the calculation involves:

1. Working out the gain from the sale.
2. Deducting any allowable costs and losses.
3. Applying your £3,000 Annual Exempt Amount for 2026/27.
4. Applying the relevant Capital Gains Tax rate or relief.

Your other taxable income can affect whether your gains are taxed at 18% or 24%.

What are the tax implications of earn-out arrangements?

When selling your business, it's not uncommon to receive part of the payment through an earn-out arrangement. This means you'll receive additional payments based on the business' performance after the sale. While earn-outs can be a smart option for some sellers, bear in mind that they can also affect your tax position.

HMRC has specific rules regarding earn-outs, and any amount tied to future performance might be taxed differently. So, if you’re planning to use this pricing mechanism, it's important to speak to a professional tax advisor and carefully structure your earn-out agreement to keep tax costs to a minimum and avoid any unexpected surprises. 

Taking advantage of Capital Gains Tax allowances and reliefs 

As we touched on earlier, Business Asset Disposal Relief can be a game-changer for sole traders and business partners looking to sell their business, as it significantly reduces the amount of CGT they’re obligated to pay. 

However, keep in mind that this relief comes with limitations. The lifetime limit for qualifying gains under Business Asset Disposal Relief is £1 million. If you’re lucky enough to be making gains above this threshold, they will be taxed at the standard CGT rate.

To be eligible for Business Asset Disposal Relief, you must be a sole trader or business partner, and you must have owned the business you’re selling for at least two years before the sale. We advise speaking with your accountant or tax advisor to check whether you qualify for this relief.

Delay paying tax on the sale with Business Asset Rollover Relief

If you plan to reinvest the proceeds from your business sale into a new business asset, you might also be eligible for Business Asset Rollover Relief. This type of tax relief allows you to defer paying CGT on your gain if you reinvest it within three years before or one year after the sale.

Business Asset Rollover Relief can be a valuable tool to preserve your profits and grow your new venture without the burden of immediate CGT payments. Again, we recommend checking with an accountant or tax advisor to ensure you meet all the necessary conditions to benefit fully from this scheme.

Incorporation Relief and Gift Hold-Over Relief

Incorporation Relief applies when you transfer business assets (excluding cash) to the newly formed company in exchange for shares. It essentially means that if you’re a sole trader, a business partner or have set up a limited company, you can delay paying CGT on those assets.

Plus, if you give away business assets or shares to friends or family, or sell them for less than they are worth, you may also be eligible for Gift Hold-Over Relief. This means you won’t pay any CGT on those assets, but the recipient of the assets will pay CGT on them when they later sell them off themselves. 

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Timing your sale right

We recommend starting to think about and plan the sale of your business a few years before you intend to sell. Planning ahead will help make the process smoother and more efficient and help you maximise your profits.

It’s also worth considering that by spreading the sale of your business and assets across multiple tax years, you could potentially use your annual CGT allowance more effectively. For example, for the 2026/27 tax year, the annual exemption is £3,000, which means you won't pay CGT on gains up to this amount.

You’re ready to start planning your sale

Selling a business can be as daunting as it is exciting, but fully understanding the tax implications can make the whole process much more straightforward. The most important thing you can do to prepare is to seek professional advice from a qualified accountant or tax advisor before making any decisions about the sale.

They will guide you through the process, find out whether you qualify for allowances such as Business Asset Disposal Relief, and help you stay on top of all of your tax obligations.

At Crunch, we understand the unique challenges faced by sole traders and small business owners. Our expert accountants are here to support you through every step of your business journey, from startup to sale. With the right advice and planning, you can confidently sell your business and embrace new opportunities with peace of mind.

So, if you're considering selling your business, consider consulting a professional who can help you make the most of this exciting next chapter. Cheers to your success!