1. Understand your transfer options

Compare the routes out of your business - selling, passing it to family, selling to employees, stepping back or closing

Pass your business to family

Capital Gains Tax on gifts, gift hold-over relief, Business Relief and handing over the running of the business

2. Get your business valued

Understand how business valuations work and why the tax is worked out on market value, even for family transfers

3. Plan for tax efficiency

Understand Business Asset Disposal Relief and how it fits with gift hold-over relief and Inheritance Tax planning

Business Asset Disposal Relief (BADR)

BADR taxes qualifying gains at a fixed relief rate, up to a lifetime limit. At current rates that saves tax only on gains that would otherwise be taxed at the higher rate of Capital Gains Tax. You must meet the conditions, including owning the business or at least 5% of the company, for 2 years before the transfer.

Rate to 5 April 2025: 10%
Rate 6 April 2025 to 5 April 2026: 14%
Rate from 6 April 2026: 18%
Lifetime limit: £1,000,000 (gains since March 2020)

Important restriction: Business Asset Disposal Relief is not available on goodwill transferred to a close company where the transferor owns 5% or more of shares or voting rights after transfer. This means you cannot claim BADR on goodwill when incorporating your own business.

Business Asset Disposal Relief (opens in a new tab)

Gift hold-over relief

When you give business assets or shares in a trading company to family, you and the recipient can jointly claim to postpone the Capital Gains Tax until the recipient disposes of them. On a sale for less than market value, relief covers the part of the gain not matched by what you were paid.

What it does: No Capital Gains Tax is paid on the gift. The recipient's base cost is reduced by the held-over gain, so it is taxed when they later dispose of the asset
Business assets that qualify: Assets used in a trade, profession or vocation carried on by you, your partnership or your personal company
Shares that qualify: Shares in an unlisted trading company or holding company of a trading group, or listed shares in your personal company
Sale at less than market value: Relief applies to the part of the gain not covered by what you were paid; any payment above your original cost is taxed now
Who claims: The giver and the recipient jointly. Only the giver signs where the recipient is the trustees of a settlement
Claim form: The claim form that accompanies HMRC helpsheet HS295
Time limit: 4 years from the end of the tax year in which the gift was made
Recipient not UK resident: Relief is generally not available, except on gifts of direct or indirect interests in UK land
Recipient leaves the UK: If the recipient stops being UK resident within 6 years after the end of the tax year of the gift, still holding the asset, the held-over gain becomes chargeable

A gift, or a sale for less than the asset is worth, to a family member or other connected person is treated as a disposal at market value, so it can create a gain even though you receive little or nothing. Hold-over relief postpones that gain rather than removing it.

Relief is not available for a gift to the trustees of a settlement in which you retain an interest. It can be restricted where only part of an asset was used in the business, or where a company whose shares you give holds investments as well as trading assets. A separate hold-over relief applies to gifts of any asset that are immediately chargeable to Inheritance Tax, such as most gifts into a trust.

Capital Gains Tax relief on gifts and similar transactions (HS295) (opens in a new tab)

Employee Ownership Trust (EOT)

Selling a controlling interest in your company to an Employee Ownership Trust that benefits all eligible employees gives Capital Gains Tax relief on part of the gain. You cannot also claim Business Asset Disposal Relief on the same shares.

Relief rate (before 26 November 2025): 100% (no CGT payable on qualifying disposal)
Relief rate (from 26 November 2025): 50% of gain relieved, 50% held over until trustees sell
Clawback period: 4 tax years following year of disposal
UK trustee residence: Required from October 2024

EOT relief provides significant CGT savings compared to standard rates. From November 2025, 50% of the gain is immediately relieved, with the remaining 50% deferred until the trustees dispose of the shares. This compares to 18% BADR rate (from April 2026, up from 14% between April 2025 and April 2026) or 24% standard CGT for non-BADR gains.

Capital Gains Tax - Employee Ownership Trusts (opens in a new tab)

Set up an Employee Ownership Trust

Qualifying conditions, the trust deed, funding the purchase and employee bonuses

4. Consider restructuring first (if needed)

If you need to change business structure before transfer - sole trader to company, partnership changes, or company reorganisation

Why restructure before transfer?

You might need to restructure if you are a sole trader wanting to transfer shares (incorporate first), splitting a partnership before one partner exits, or separating trading and property assets before sale. Allow 6 to 12 months for restructuring before the main transfer.

Legislation: Section 162 Taxation of Chargeable Gains Act 1992
Effect: Defers CGT by reducing base cost of shares received
Claim required: Automatic (no claim needed before April 2026)
Claim required from April 2026: Must claim in Self Assessment return for transfers from 6 April 2026

Conditions for Incorporation Relief:

Be a sole trader or in business partnership
Transfer the business as a going concern
Transfer all assets (except cash)
Receive shares wholly or partly in exchange

If receiving mixed consideration (shares plus cash), relief only applies to the share proportion. The deferred gain becomes payable when shares are eventually sold.

Incorporation Relief (HS276) (opens in a new tab)

5. Execute the legal transfer

Negotiate terms, draft agreements, and complete the legal transfer of ownership

Sale and Purchase Agreement or share transfer

Even family transfers need proper legal documentation. A Sale and Purchase Agreement protects both parties with warranties, indemnities, and clear terms. Share transfers need a stock transfer form.

In business acquisitions and major commercial contracts, buyers rely on warranties (seller promises about the business) and indemnities (compensation for specific risks) to protect against undisclosed liabilities and misrepresentations.

Warranties vs indemnities

Warranties are promises by the seller about the state of the business. If a warranty is breached, you can claim damages from the seller (usually capped at the purchase price, often with de minimis thresholds). You must prove your loss.

Indemnities are pound-for-pound compensation for specific known risks. Unlike warranties (where you prove loss), indemnities give automatic compensation. No need to prove causation or quantum of loss.

Typical warranty categories

Financial: Accounts are accurate, no undisclosed liabilities, debtors are collectible
Legal: No litigation pending, all contracts are valid, intellectual property is owned outright
Operational: Plant and equipment in working order, no key customer losses, supplier contracts transferable
Employment: No ongoing grievances, TUPE information accurate, no threatened tribunal claims
Compliance: All regulatory requirements met, licences valid, no environmental breaches

Common indemnities

Indemnities typically cover specific known risks where the quantum is uncertain:

Outstanding tax liabilities for pre-completion periods
Known litigation or tribunal claims
Environmental clean-up costs
Specific contractual liabilities (e.g., warranty claims from customers)
Regulatory fines or penalties for pre-completion conduct

Limitations on warranty claims

The Sale and Purchase Agreement will limit your ability to claim for warranty breaches:

Time limits: Claims must be brought within 12-24 months (tax warranties often 6-7 years to match HMRC limitation periods)
Financial caps: Total claims capped at purchase price (or a portion, commonly 50-75%)
De minimis threshold: Individual claims below threshold excluded (typically £5,000-£10,000 per claim)
Aggregate threshold: Total claims must exceed threshold before any recovery (typically £20,000-£50,000 cumulative)
Disclosure defence: If seller disclosed an issue in disclosure letter, you cannot claim for it later

Warranty and indemnity (W&I) insurance

Instead of retention or direct recourse against seller, consider W&I insurance:

Buyer-side policy: You claim against insurer (not seller) for warranty breaches
Seller-side policy: Seller insures their warranty exposure
Cost: Typically 1-2% of policy limit (e.g., £10,000-£20,000 for £1m cover)
Benefits: Clean break for seller, no retention holdback, faster claim resolution, preserves commercial relationships

Negotiation considerations

Common negotiation points:

Warranty coverage: Seller wants narrow warranties, buyer wants comprehensive
De minimis and threshold: Seller wants high thresholds, buyer wants low
Time limits: Seller wants short (6 months), buyer wants long (24 months)
Financial caps: Seller wants caps at 50% of price, buyer wants 100%
Retention amount: Buyer wants 10-20% retention for 6-12 months, seller wants 0% (or W&I insurance instead)

Stamp Duty on share transfers

Stamp Duty is due on a paper share transfer where the price is over the threshold in the snippet below, and the form must be sent to HMRC for stamping. Electronic share transfers pay Stamp Duty Reserve Tax instead. There is no Stamp Duty on shares given for nothing.

Stamp Duty rate: 0.5% of consideration (rounded up to nearest £5)
Exemption threshold: £1,000 or less - no duty payable
Submission method: Email to stampdutymailbox@hmrc.gov.uk
Filing deadline: 30 days after document signed
Processing time: Approximately 15 working days

Paper share transfers are common for private company shares. Complete stock transfer form J30 (for fully paid shares) or J10 (for partly paid). HMRC no longer accepts postal submissions - you must email the form. You cannot register the share transfer until HMRC stamps the form.

Stamp shares and securities (opens in a new tab)

6. Handle employee transfer obligations

Understand TUPE requirements when the business changes hands - employees transfer automatically with their existing rights

TUPE applies when the employer changes

When a business or its assets move to a new owner as a going concern, including from a sole trader or partnership to a successor, employees transfer automatically under TUPE with their existing terms, pay, and continuous service. Both outgoing and incoming employers have duties to inform and consult. TUPE does not apply to a transfer of company shares, because the company remains the employer.

Both the old and new employer have information and consultation duties before a TUPE transfer.

Who must be informed: Employee representatives (trade union reps or elected representatives)
When to inform: Long enough before the transfer to enable meaningful consultation
Information required: Fact of transfer, when it will happen, reasons for transfer, legal/economic/social implications
Measures information: New employer must provide details of any planned changes to old employer (to pass to reps)
Consultation required when: Either employer proposes to take measures affecting employees
Consultation scope: Must consult with a view to seeking agreement (not just informing)
Direct consultation permitted: Where there are no existing representatives and you have not invited employees to elect any, you may inform and consult each affected employee directly if you employ fewer than 50 people or fewer than 10 employees are transferring (for transfers on or after 1 July 2024)

Consultation requirements (opens in a new tab)

Employee liability information

The outgoing employer must give the new employer written information about the transferring employees before the transfer. This covers their particulars of employment, disciplinary and grievance records, and claims.

The old employer must provide written employee liability information to the new employer.

Deadline: At least 28 days before the transfer (unless not reasonably practicable)
Identity and age: Name and date of birth of each transferring employee
Employment particulars: Information from the written statement (job title, start date, pay, hours, notice period)
Disciplinary/grievance history: Any formal action taken in previous 2 years
Tribunal claims: Any claims brought against old employer in previous 2 years, or reasonably anticipated
Collective agreements: Details of any collective agreements affecting transferring employees
Penalty for failure: Tribunal can award minimum £500 per employee for failure to provide ELI

Employer responsibilities (opens in a new tab)

7. Partner buyout (if applicable)

What to do when a partner retires or leaves and the others buy out their share

Dissolve a business partnership

If the partnership ends rather than continuing without the departing partner

Partnership buyout options

Check your partnership agreement for buyout terms, valuation methods, and payment structures. Without clear agreement terms, the Partnership Act 1890 defaults apply. You may need to formally dissolve and reform the partnership, or use a direct purchase of the departing partner's share.

Under the Partnership Act 1890, certain events automatically dissolve a partnership unless the partnership agreement provides otherwise. Most written agreements exclude automatic dissolution on death or bankruptcy.

Expiration or notice (s.32): Fixed term expires, single venture completes, or any partner gives notice (if no fixed duration)
Death of partner (s.33): Automatic dissolution unless agreement provides otherwise
Bankruptcy of partner (s.33): Automatic dissolution unless agreement provides otherwise
Charging order on share (s.33): May be dissolved at option of other partners if partner's share is charged for separate debt
Illegality (s.34): Any event making partnership business unlawful

Dissolution by court order (s.35)

A court may order dissolution on these grounds:

Mental incapacity of a partner
Permanent incapacity of a partner
Partner's conduct prejudicial to business
Wilful or persistent breach of agreement
Business can only be carried on at a loss
Just and equitable to dissolve

Partnership Act 1890 (opens in a new tab)

Capital gains on partnership exit

When a partner leaves and is paid for their share of the partnership's assets, including goodwill, they may make a capital gain. It may qualify for Business Asset Disposal Relief.

Transparency principle: CGT assessed on individual partners, not the partnership
CGT basic rate (from 30 Oct 2024): 18%
CGT higher rate (from 30 Oct 2024): 24%
Annual exempt amount: £3,000 per person
Business Asset Disposal Relief rate (2024/25): 10%
BADR rate (from 6 April 2025): 14%
BADR rate (from 6 April 2026): 18%
BADR lifetime limit: £1,000,000
BADR claim deadline: 31 January in second year following tax year of disposal

Partnerships are treated as 'transparent' for CGT under TCGA 1992 s.59(1). When assets are distributed, gains attributed to partners not receiving the asset are charged immediately. Gains attributed to partners receiving the asset are deferred by reducing their CGT cost base.

Business Asset Disposal Relief (HS275) (opens in a new tab)

8. Plan the handover period

Structure a transition period to transfer knowledge, relationships, and operational control to the new owner

9. Post-completion obligations

What you need to do after the transfer completes - notifications, tax returns, and record keeping

Notify HMRC and keep records

Report the disposal on your Self Assessment or Corporation Tax return, and make any relief claims within their time limits. Keep records of the transfer, valuation, and tax calculations for at least 6 years, and evidence that you met the conditions for any relief you claimed.

General principle: Retention period runs from when records created, not when business closed
VAT after deregistration: 6 years from date of transaction/invoice
Sole trader cessation: 5 years from 31 January deadline for final tax year
Partnership dissolution: 5 years from final return deadline (each partner should retain copies)
Company dissolution - directors: Directors remain responsible for record-keeping after striking off

Business owners must continue to store records securely after closure. Storage options include personal secure storage, professional document storage services, or cloud storage (if digital requirements are met). Records must remain accessible if HMRC enquires.

Transfer ownership of your business

Related journeys

Sell your business

Form a business partnership

Manage your employees

Change your business structure