When the day comes to step back from a company you have built, the tax bill is often the last thing on your mind. Understandably so — there are buyers to negotiate with, staff to tell and a business to keep running in the meantime. But the structure of a sale can change your tax position dramatically, sometimes by tens of thousands of pounds. This guide sets out the main issues for UK limited company owners, so you can ask the right questions before you sign anything.

The two routes: shares or assets

Almost every sale takes one of two forms, and the difference matters enormously.

• Share sale: the buyer acquires your shares in the company. The company stays intact, and you personally make a capital gain. Buyers often prefer this because contracts, trading history and tax reliefs transfer across cleanly.
• Asset sale: the buyer picks up the trade, premises, goodwill or equipment from the company. The company pays corporation tax on any gains, and you only get your hands on the money when you extract it.

In practice, the buyer's preference often decides the structure. Know which one you are being offered, and what it costs you.

Capital gains tax on a share sale

Selling shares is a disposal for capital gains tax. You pay CGT on the gain — sale proceeds less what you originally paid for the shares and any allowable costs. The annual exempt amount is only £3,000, so most sellers will pay something.

Where it gets serious is the rate. Standard CGT rates on shares are 18% within the basic rate band and 24% above it. But if you qualify for Business Asset Disposal Relief (BADR), the rate drops to 10% on up to £1 million of lifetime gains.

To qualify, broadly, you must:

• Have held the shares for at least two years.
• Be an officer or employee of the company.
• Hold at least 5% of the shares and voting rights, and be entitled to 5% of the profits and assets on winding up.
• Deal in a trading company rather than one whose main activity is investment.

It is a generous relief, but the conditions are strict and the company's trading status is a common sticking point. Claims must be made by 31 January, roughly 22 months after the end of the tax year of disposal — miss that and the 10% rate is lost.

If the gain straddles the basic rate band, spreading a sale across two tax years can help. So can remembering that your personal allowance tapers away once income exceeds £100,000.

When the company sells its assets

In an asset sale, the company typically pays corporation tax on chargeable gains at its own rate — 19% for profits up to £50,000, rising to 25% above £250,000, with marginal relief in between.

Several traps await the unwary:

• Goodwill: a gain on goodwill sold to an unrelated buyer is usually a chargeable gain, though reliefs can apply if you sell the whole business.
• Property: commercial premises attract corporation tax on the gain and stamp duty land tax for the buyer.
• VAT: a transfer of a business as a going concern can be outside the scope of VAT, but only if the conditions are met.
• Double taxation: the company pays tax on the gain, then you may pay income tax again when you take the cash out as a dividend or salary.

That second layer is why asset sales often leave owners worse off personally, even when the headline price looks similar.

Getting money out of the company afterwards

If the buyer won't purchase your shares and the company ends up with cash, how you extract it matters.

• Dividends are taxed at 8.75%, 33.75% or 39.35%, depending on your other income.
• Salary or bonuses attract income tax and National Insurance on both sides, though employer contributions into a pension can be efficient.
• Members' voluntary liquidation is a common route. Once the company is formally wound up, distributions to shareholders are treated as capital rather than income, potentially qualifying for BADR. For sums above roughly £25,000, liquidation is usually preferred to a simple strike-off, which risks being taxed as a dividend.
• Striking off is cheaper but only suitable for small amounts, and HMRC can challenge it if the main purpose looks like tax avoidance.

Reliefs and reliefs you may not have considered

BADR gets the headlines, but a good adviser will check the full picture:

• EIS and SEIS shares may benefit from deferral or, in some cases, exemption from CGT if held long enough.
• Losses elsewhere in the year can be offset against gains, and unused losses can be carried forward within limits.
• Gift relief can defer gains where shares pass to a family member or into trust.
• Investors' Relief may apply to external shareholders who subscribed for shares in an unlisted trading company.

Each has its own conditions, and some interact badly with BADR. Model them before committing, not after.

Planning before you sign heads of terms

Heads of terms are usually non-binding on price but morally binding in practice, and once a structure is agreed, changing it is difficult. Before that stage, do three things. First, work out the net proceeds under both routes, not just the gross price. Second, confirm whether the company is a trading company for BADR purposes, and for how long it has been one. Third, think about timing — the tax year end falls on 5 April, and splitting a disposal can save real money.

Sales take months, sometimes longer, and warranty claims can drag on. Building tax planning into the timetable early is far cheaper than fixing it afterwards. Speak to an accountant who deals with company disposals before you sign anything — it is the single best return on advice you will get this year.