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Does selling a Limited Company have tax implications?

  • 3 min read
  • Last updated 14 Sep 2022

Wondering whether selling a Limited Company has tax implications? If you’re thinking of selling up to kick-start a new venture or you think now’s the time to make a profit from your business, there are a bunch of things to consider.

You’re probably already thinking about who you sell your business to, how to get started with the sale, and what taxes you might have to pay.

In this guide, we’ll take a closer look at the potential tax implications when it comes to selling your Limited Company.

What is a Limited Company?

First things first – let’s make sure we’re all on the same page when it comes to a Limited Company.

A Limited Company is an organisation that runs your business, meaning you’re no longer entirely responsible for it. If you’ve landed on this page then you probably already knew that, but hey, we’re here to help.

How much tax will I need to pay when selling my Limited Company?

Think of selling your business like selling a house – you want the best possible price with the least amount of hassle.

How much tax you’ll pay depends on the structure of your business, as well as your profit margins. Identifying all of these factors now will help you on your way to a hassle-free sale. Gov.uk offers some handy advice on your responsibilities when selling a Limited Company.

So, let’s talk about business and sale structure!

When you sell your business, the amount of tax you pay will depend on your operating structure as a business – and the sale itself.

As a Limited Company, you might need to pay Capital Gains Tax and Corporation Tax, whereas a Sole Trader would pay Income Tax instead.

How you sell your business (the sale structure) can also play a part. This is where things can get a little complicated – so let’s break it down!

Ways to sell your Limited Company

  • Share Sale – when the owner sells their shares (or owners)
  • Asset Sale – when the owner sells assets from the company, such as investments, to a new owner
  • Management Buy Out (MBO) – when the management team buys a majority stake in the company
  • Merger – when a company merges with another one

You’ll need to identify your sale structure to better understand what taxes you’ll need to pay.

What taxes will I need to pay?

There are 3 taxes you need to be aware of when selling your Limited Company.

Capital Gains Tax

Capital Gains Tax (CGT) is the tax applied on the profits made from selling your business – every owner selling a Limited Company will need to pay tax on their Capital Gain.

How to calculate your Capital Gain: ​​​Let’s imagine you’re selling your business for £500,000 and you bought it for £300,000. Your Capital Gain = £200,000.

Once you’ve worked this out, you can use our handy Capital Gains Tax calculator to do the maths for you! It really is that simple.

Your situation

Outlined number oneOutlined number one
How did you make money?
Profit from capital gains
Annual salary
?
Other income
?

Tax and profit

Outlined number two
  • Your profit from
    shares
    £20,000
    Incl. £12,300 tax-free CGT allowance
    ?
  • Capital Gains Tax to pay
    £1,413
  • Profit after tax
    £18,587

How your capital gains tax is calculated

Your total capital gains tax (CGT) owed depends on two main components:

  1. How much you earn in total
  2. What type of assets you sell

Your overall earnings determine how much of your capital gains are taxed at 10% or 20%.
Our capital gains tax rates guide explains this in more detail.

In your case where capital gains from shares were £20,000 and your total annual earnings were £69,000:

Capital gains tax (CGT) breakdown

You pay no CGT on the first £12,300 that you make

You pay £127 at 10% tax rate for the next £1,270 of your capital gains

You pay £1,286 at 20% tax rate on the remaining £6,430 of your capital gains

Business Asset Disposal Relief

Now that we’ve got to grips with CGT, let’s take a look at Business Asset Disposal Relief (BADR tax). You might also know this as Entrepreneurs Relief.

Business Asset Disposal Relief could help you reduce your tax liabilities when selling your Limited Company. But how?

BADR works by reducing the Capital Gains Tax rate to 10% for eligible entrepreneurs. As an owner of a Limited Company, you could qualify for this generous tax relief if:

You’re disposing of your personal business or shares in a business partnership.

OR

You’re a director of your company and are selling shares.

Read more here about BADR eligibility and how to claim.

Corporation Tax

If you’re thinking about selling company assets as part of your sale (an asset sale), you’ll probably need to pay Corporation Tax (or Company Tax) in addition to CGT.

How much Corporation Tax you pay will depend on:

  1. How much you make from the sale
  2. Whether you’re eligible for any tax relief such as Business Asset Disposal Relief

Don’t worry if you’re not selling assets – you won’t need to pay Corporation Tax. 

You can learn more about Corporation Tax here.

Tell me more!

Getting to grips with the tax implications of selling a Limited Company isn’t easy – but TaxScouts can help! For tax advice on your sale, we can offer simple, one-off advice. We’ll assign you an accredited accountant for £119, all in. Get started here.

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