Buying or selling a small business in the UK: tax, TUPE, insurance and the due diligence checklist

Asset sale or share sale: what actually transfers

The legal structure of your deal decides what changes hands, what liabilities you inherit, and how much tax you pay. An asset sale lets the buyer pick specific assets and liabilities, while a share sale transfers the entire company, including its history. This choice shapes the price, the warranties, and the paperwork.

In an asset sale, the buyer acquires selected assets such as plant, stock, goodwill, and intellectual property. They can leave behind unwanted liabilities like old debts or pending disputes. The seller retains the legal entity and must wind it down or sell it separately. Contracts with customers and suppliers often need consent to assign, and employees transfer under TUPE rules.

A share sale transfers ownership of the company itself. The buyer steps into the seller's shoes and takes the company with all its assets, contracts, and liabilities, including those not known at completion. This means hidden risks such as historical tax errors or employment claims become the buyer's problem. Warranties and indemnities in the sale agreement are the main protection.

Price mechanics differ. In an asset sale, the buyer pays for specific items and can claim capital allowances on plant. In a share sale, the price reflects the whole company value, and the buyer inherits the company's tax history. The seller's tax position also differs: asset sales may qualify for Business Asset Disposal Relief, while share sales have separate rules. Most small business deals are asset sales because buyers prefer to avoid inherited liabilities.

Seller tax: Business Asset Disposal Relief and the 2026 rate change

Business Asset Disposal Relief, formerly Entrepreneurs' Relief, taxes gains on selling a business at a lower rate than standard capital gains tax. You must meet strict conditions on ownership and your role in the business. The rate rises from 14 percent to 18 percent from 6 April 2026, so timing matters.

To qualify, you must have owned the business for at least two years before the sale. You must also be an officer or employee of the company, or a self-employed sole trader or partner. Your shareholding must give you at least 5 percent of the voting rights and entitle you to at least 5 percent of the distributable profits and assets on a winding up. The relief applies to a lifetime limit of £1 million of gains, as stated by HMRC in its Business Asset Disposal Relief guidance.

The rate for disposals in the 2025-26 tax year is 14 percent. From 6 April 2026, the rate increases to 18 percent. This change, announced by the government, affects the timing of your sale. If you complete before 6 April 2026, you pay the lower rate on qualifying gains up to the £1 million limit. Gains above the limit are taxed at the standard capital gains tax rate for your income band.

Claims must be made in your tax return for the year of disposal. You need to report the gain and claim the relief by the filing deadline. HMRC can enquire into the claim and require evidence of the qualifying conditions. Professional advice on structuring the sale before completion can help preserve the relief.

Buyer tax: stamp duty, VAT and capital allowances

Buyers face different tax costs depending on the deal structure. Share purchases attract stamp duty at 0.5 percent on consideration over £1,000. Asset purchases may be outside the scope of VAT as a transfer of a going concern, and you can claim capital allowances on plant and machinery.

Stamp duty on share transfers is charged at 0.5 percent of the consideration paid, rounded up to the nearest £5. The duty applies where the consideration exceeds £1,000. You must file a stock transfer form and pay the duty to HMRC within 30 days of the transfer. This is a simple cost compared with the tax on property transfers, which follows different rules.

For asset sales, VAT treatment depends on whether the sale qualifies as a transfer of a going concern (TOGC). Under HMRC guidance, if you sell the business as a going concern to a buyer who will use it for the same kind of business, the sale may be outside the scope of VAT. This avoids a VAT charge on goodwill and other assets. Conditions include the buyer being VAT registered or becoming so, and the seller not having made an option to tax on the property.

Capital allowances let you deduct the cost of plant and machinery from your taxable profits. In an asset sale, you can claim allowances on the assets you buy, including fixtures and equipment. The rate depends on the type of asset and whether it is new or second-hand. In a share sale, the company retains its existing capital allowance pool, and you inherit the tax history. Goodwill amortisation relief for companies was largely withdrawn in 2015, so buying shares does not give a tax deduction for goodwill.

TUPE: staff come with the business

The Transfer of Undertakings (Protection of Employment) Regulations 2006, known as TUPE, protect employees when a business changes hands. Staff transfer automatically on their existing terms, and dismissal because of the transfer is automatically unfair. You must inform and consult representatives before the transfer.

TUPE applies to both asset sales and share sales where there is a relevant transfer of an economic entity that retains its identity. In an asset sale, employees assigned to the business transfer to the buyer. In a share sale, the company remains the employer, so TUPE does not apply in the same way, but the change of control may trigger contractual obligations.

Under the TUPE Regulations 2006, the seller must provide employee liability information to the buyer at least 28 days before the transfer. This includes details of terms and conditions, collective agreements, and any legal claims. The buyer and seller must inform and consult affected employees or their representatives about the transfer and any measures planned. If no representatives exist, you must arrange an election.

Dismissing an employee because of the transfer is automatically unfair. You can dismiss for economic, technical, or organisational reasons if these involve changes in the workforce, but you must follow a fair process. Employees who object to transferring lose their employment rights but are not forced to work for the buyer. Pension rights are excluded from TUPE, except for certain occupational pension schemes, so you must check the pension arrangements separately.

Insurance on completion day

Insurance does not automatically transfer when you buy or sell a business. In an asset sale, the buyer must arrange new policies from day one. In a share sale, existing policies continue but insurers must be notified of the change of control. Sellers may need run-off cover for past work.

In an asset sale, the seller's insurance policies cover the seller's legal entity, not the assets being sold. The buyer must take out new policies for employer's liability, public liability, and any professional indemnity cover before completion. Gaps in cover can leave you exposed to claims from day one. You should arrange policies to start at completion and confirm cover for the assets you are acquiring.

In a share sale, the company's insurance policies remain in force because the legal entity does not change. However, most policies contain a change-of-control clause that requires you to notify the insurer. Failure to notify can void cover. The insurer may reassess the risk and adjust premiums or terms. You should review all policies, including directors' and officers' liability, before completion.

Sellers often need run-off cover for professional indemnity claims arising from work done before the sale. This extends the policy period to cover past activities. The cost depends on the claims history and the nature of the work. In larger deals, warranty and indemnity insurance can protect the buyer against breaches of warranties in the sale agreement, transferring risk away from the seller. This is more common in private equity transactions but is available for smaller deals.

Due diligence checklist

Due diligence is the buyer's investigation of the business before completion. It verifies the financial position, legal compliance, and commercial risks. A thorough review protects you from hidden liabilities and informs the warranties in the sale agreement.

Start with accounts and tax records. Review at least three years of accounts, management accounts, VAT returns, and PAYE records. Check for outstanding tax liabilities, penalties, or disputes with HMRC. Confirm that the company has filed all returns on time and that the tax position is clean. In an asset sale, check which assets are included and whether any are subject to finance leases or hire purchase agreements.

Review contracts with customers, suppliers, and employees. Look for change-of-control clauses that allow the other party to terminate if the business is sold. These can be triggered in a share sale and may require consent. Check employment contracts for notice periods, restrictive covenants, and bonus arrangements. Under TUPE, you inherit these terms, so any mismatch with your own policies needs attention.

Verify licences, leases, and intellectual property. Confirm that the business holds all necessary licences and permits and that these are transferable. Check property leases for assignment clauses and rent review terms. For intellectual property, confirm ownership of trademarks, patents, and domain names. Check data protection registration with the Information Commissioner's Office and compliance with UK GDPR.

Investigate litigation and health and safety history. Search for any ongoing or threatened claims, including employment tribunals, commercial disputes, or regulatory action. Review health and safety records, including accident reports and enforcement notices from the Health and Safety Executive. A history of breaches can indicate future liabilities and affect your insurance premiums.

What tax do I pay when I sell my small business in the UK?

You pay capital gains tax on any profit above your annual exempt amount. If you qualify for Business Asset Disposal Relief, the rate is 14 percent for disposals in 2025-26 and 18 percent from 6 April 2026, up to a £1 million lifetime limit. Gains above the limit are taxed at standard capital gains tax rates.

What is the difference between an asset sale and a share sale?

In an asset sale, the buyer purchases specific assets and liabilities and leaves the rest behind. In a share sale, the buyer purchases the company itself and inherits all its assets, liabilities, and history. Asset sales are more common for small businesses because they limit the buyer's exposure to hidden risks.

Do employees automatically transfer when a business is sold?

Yes, under the TUPE Regulations 2006, employees assigned to the business transfer automatically on their existing terms and conditions. Dismissal because of the transfer is automatically unfair. The seller must provide employee liability information, and both parties must inform and consult employees or their representatives.

Does business insurance transfer to the new owner?

In an asset sale, no. The buyer must arrange new policies from completion day. In a share sale, the company's policies continue, but you must notify insurers of the change of control. Sellers may need run-off cover for professional indemnity claims on past work.

How much stamp duty is paid on buying company shares?

Stamp duty on share transfers is 0.5 percent of the consideration paid, rounded up to the nearest £5. The duty applies where the consideration exceeds £1,000. You must file a stock transfer form and pay the duty to HMRC within 30 days of the transfer.

Frequently asked questions

What tax do I pay when I sell my small business in the UK?

If you sell shares in your personal company, Business Asset Disposal Relief may apply to the first £1 million of gains, giving a 14 percent rate in 2025-26 and 18 percent from 6 April 2026. Gains above this are taxed at 20 percent for shares. Selling business assets may attract capital gains tax at 10 percent or 20 percent, depending on reliefs.

What is the difference between an asset sale and a share sale?

In an asset sale, you sell the business assets and liabilities individually; the company remains owned by you. In a share sale, you sell the shares in the company, transferring ownership of the entire company, including all its assets, liabilities, and contracts. Tax treatment differs: asset sales may allow capital allowances, while share sales may qualify for Business Asset Disposal Relief.

Do employees automatically transfer when a business is sold?

Under the TUPE Regulations 2006, employees automatically transfer to the buyer on their existing terms and conditions when a business is sold as a going concern. Dismissal because of the transfer is automatically unfair. This applies to both asset and share sales, but in a share sale the employer remains the same company.

Does business insurance transfer to the new owner?

Insurance policies do not transfer automatically in an asset sale; the buyer must arrange new cover. In a share sale, policies remain with the company, but insurers must be notified of the change of control, as it may affect the policy terms or validity.

How much stamp duty is paid on buying company shares?

Stamp duty on share transfers is 0.5 percent of the consideration over £1,000. For example, buying shares for £100,000 incurs £500 duty. The buyer is responsible for paying and must file a stock transfer form with HMRC within 30 days.