• The seller must hold at least 5% of ordinary share capital.

• Those shares must provide:

  • 5% voting rights

  • 5% of distributable profits

  • 5% of assets on winding up

  • 5% of sale proceeds

Where the gain exceeds £1 million, the excess is taxed at the 2025/26 higher/additional-rate CGT rate of 24%.

Importantly, BADR must be claimed on or before the first anniversary of the 31 January following the tax year of disposal.

Deferred Cash Consideration and Business Sale Tax Implications

If you sell a company for cash paid in instalments, HMRC treats the entire gain as arising on completion, regardless of when payments are received. This means:

• CGT is due by 31 January after the tax year of sale,

• even if instalments stretch far beyond that date.

It is possible to apply to HMRC for payment of tax by instalments, but only if the deferred payments extend at least 18 months beyond the normal tax deadline.

A full cash sale is generally the most straightforward structure and carries the lowest risk, particularly where BADR applies.

Loan Notes (Deferred Payments) – Key Business Sale Tax Implications

Loan notes can provide flexibility by allowing the seller to defer CGT until the notes are redeemed or sold.

The key distinction is between Qualifying Corporate Bonds (QCBs) and non-QCBs.

QCB loan notes

• CGT is deferred until redemption.

• BADR is generally lost, because QCBs are not chargeable assets for BADR purposes.

• Future CGT may be charged at a higher rate, depending on tax policy changes.

Electing to trigger CGT immediately

Sellers can elect to pay CGT in the year of the share sale, allowing BADR to apply.

However, you must ensure you have sufficient funds to pay CGT on both cash and loan note value by the tax deadline.

Non-qualifying loan notes

• CGT is deferred to redemption or disposal.

• BADR cannot be claimed on the deferred gain.

Loan notes can be valuable when sellers want to delay CGT, but they reduce BADR availability and may increase long-term tax costs.

Earn-Outs and Business Sale Tax Implications

Earn-outs are attractive when the seller believes the company will grow after acquisition. However, they carry higher tax complexity.

How earn-outs are taxed

• HMRC requires an estimate of the future earn-out value at the point of sale.

• That estimated value is taxed in the year of sale, and may qualify for BADR if it relates to the sale of trading company shares.

• When cash is later received, that additional amount is treated as a disposal of a chose in action, meaning it does not qualify for BADR.

Earn-outs paid in shares

If the purchaser pays the earn-out in shares rather than cash:

• CGT may be rolled over,

• and deferred until the new shares are sold.

This provides timing benefits but adds market risk.

Practical Planning to Reduce Business Sale Tax Implications

For married couples or civil partners, one effective strategy is to transfer shares to a spouse before the sale.

Provided they meet the same BADR conditions, you can double the BADR allowance to £2 million, significantly reducing the overall tax burden.

Early planning—ideally two years ahead—allows time to correct any issues around trading status, share structures, or director/shareholder status.

How Trueman Brown Can Help Reduce Your Business Sale Tax Implications

Selling a business is often the most significant financial event of an owner’s life. At Trueman Brown, we help business owners:

• structure transactions to maximise BADR,

• choose between cash, loan notes and earn-outs,

• model tax outcomes under different deal structures,

• prepare for 2025/26 rule changes,

• optimise timing to reduce overall CGT exposure.

If you’re planning to exit your business—or simply want to understand the business sale tax implications more clearly—speak to us directly:

📧 mark@truemanbrown.co.uk
📞 01708 397262

FAQs – Business Sale Tax Implications

1. Will CGT rates definitely rise again after 2025/26?

The only confirmed changes are the BADR increases to 14% in 2025/26 and 18% in 2026/27. Wider CGT policy remains subject to future government decisions.

2. Can I still use BADR if I receive loan notes?

Only if you elect to pay tax immediately. Without the election, BADR is lost for QCB loan notes.

3. What happens if my earn-out ends up being lower than the estimate taxed upfront?

You may be able to claim a loss to offset the overestimation, subject to HMRC rules.

4. Can I defer CGT indefinitely through loan notes?

No. CGT becomes payable on redemption, disposal, or expiry of the notes.

5. Is transferring shares to my spouse definitely tax-free?

Yes—transfers between spouses are no gain, no loss for CGT purposes. However, your spouse must meet the 2-year BADR qualification period before sale.