Six tax traps to avoid when selling your business

Why timing, structure and planning are everything

Selling your business is a major life event. For many, it represents the culmination of years of work, risk-taking and resilience. Done well, it can be an immensely rewarding moment. Done poorly, it can become a frustrating and costly experience.

At Clarion, we help business owners approach exit planning with clarity and control. John Winstanley outlines the six most common tax traps we see time and again, and what you can do to avoid them.

1. Assuming You Qualify for Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) allows you to pay just 14% Capital Gains Tax (CGT) on the first £1 million of qualifying gains. It is a valuable relief, but the eligibility criteria are more restrictive than many realise.

To qualify, you must:

Own at least 5% of shares and voting rights
Be a director or employee
Hold the shares for at least two years before the sale

The trap: Many business owners assume they will receive this relief, only to find out that small changes in structure or timing disqualify them.

What to do: Review your eligibility early. A modest adjustment made in good time can protect a substantial portion of your sale proceeds.

2. Overlooking Pre-Sale Restructuring Opportunities

Many business owners go to market without first considering how the business is structured. Leaving unnecessary assets in the business or missing opportunities to streamline ownership can result in inefficient outcomes.

The trap: Selling under the wrong structure can trigger additional tax, reduce the sale value or increase complications post-sale.

What to do: Engage a financial planner and tax adviser well in advance. With 12 to 24 months of lead time, it is often possible to separate property, surplus cash or non-trading activities into a more efficient structure.

3. Failing to Use Your Spouse’s Allowances

Married couples and civil partners each have their own CGT exemptions and BADR limits. Structured appropriately, ownership between spouses can be used to double the tax efficiency of the transaction.

The trap: Holding all shares in one name and missing out on reliefs available to both individuals.

What to do: Work with your legal and financial advisers to plan this well in advance. Last-minute changes can create complications or unintended tax consequences.

4. Forgetting About Inheritance Tax (IHT)

Shares in a trading business may qualify for full relief from Inheritance Tax. However, once the business is sold and the value converted to cash, that relief is lost, and the proceeds form part of your taxable estate.

The trap: Unwittingly increasing your family’s exposure to Inheritance Tax by converting protected assets into cash without a clear plan.

What to do: Review your estate planning at the same time as your exit planning. Trusts, gifting strategies and other tools can help protect your legacy while maintaining flexibility.

5. Mismanaging Earn-Outs and Deferred Consideration

Many sales involve part of the proceeds being paid over time, often subject to future performance or milestones. Without careful structuring, CGT can become payable immediately, even on amounts you have not yet received.

The trap: Paying tax upfront on future or uncertain payments.

What to do: Negotiate clear terms and seek advice on the appropriate tax treatment. The right structure can protect you in the event that payments fall short or are delayed.

6. Leaving Planning Too Late

This is the most common mistake and often the most expensive. Many tax strategies need to be in place well before the sale is agreed. Once terms are on the table, your room for manoeuvre narrows significantly.

The trap: Discovering after the fact that a small change made six months earlier could have potentially saved a significant sum of money.

What to do: Begin planning as early as possible. Even if a sale is not imminent, preparing the business and your personal finances early creates optionality, not obligation.

Final Thoughts

Selling a business is not just a financial event. It is a life transition. With the right planning, you can avoid costly mistakes, simplify the process and retain more of the value you have created.

At Clarion, we help clients prepare not only for the sale itself, but for the life that follows. We bring together planning, technical insight and long-term thinking to give you peace of mind and clarity at every step.

Thinking about succession or sale? Book a confidential initial meeting to explore how we can support you with your plans and for what comes next.

Risk Warnings

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. Clarion Wealth Planning Limited is not a tax adviser and tax advisory services are not regulated by The Financial Conduct Authority