Share Sale vs Asset Sale: The Tax Difference UK Business Owners Need to Understand
If you are selling your business, the structure of the deal. Share sale or asset sale. Will almost certainly be the single biggest factor in how much you actually walk away with after tax. Sellers almost always prefer a share sale. Buyers almost always prefer an asset sale. Understanding why, and how the negotiation typically plays out, puts you in a much stronger position before you enter any conversation with a prospective buyer.
Table of Contents
- What is the difference between a share sale and an asset sale?
- Why do sellers prefer a share sale?
- Why do buyers prefer an asset sale?
- How does the negotiation between buyer and seller play out?
- What is a TOGC and why does it matter?
- How is goodwill taxed in an asset sale?
- Comparison: Share Sale vs Asset Sale. Key Tax Differences
- FAQ
What is the difference between a share sale and an asset sale?
In a share sale, the buyer purchases your shares in the company. The company itself. With all its contracts, liabilities, employees, and history. Transfers in its entirety. You, as the selling shareholder, receive the sale proceeds directly.
In an asset sale, the buyer purchases specific assets from the company: plant and machinery, stock, customer contracts, intellectual property, goodwill, and so on. The company itself remains with the original shareholders. The proceeds land in the company first, and extracting them personally creates a second layer of tax.
That distinction is the root of almost every tax difference that follows.
Why do sellers prefer a share sale?
Three reasons: simplicity, tax rate, and finality.
Capital Gains Tax and BADR. In a share sale, you are disposing of a personal asset. Your shares. Any gain is subject to Capital Gains Tax (CGT). If you qualify for Business Asset Disposal Relief (BADR), the effective rate on the first £1 million of qualifying gains is 14% (as of April 2026). Gains above that threshold are taxed at 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers. Compare that to Income Tax rates of up to 45%, and the difference is substantial.
No double tax problem. In a share sale, proceeds go directly to you. In an asset sale, the company is paid first. To get the money out as a dividend you pay corporation tax on the gain inside the company, then Income Tax on the dividend. The effective combined rate can comfortably exceed 50% in many cases.
Clean exit. A share sale transfers everything. Including historic liabilities. For the seller, that is the point: you step away cleanly and the buyer takes on the business as it stands. Yes, the buyer will seek warranty and indemnity protections, but the legal and structural exit is straightforward.
Why do buyers prefer an asset sale?
From a buyer's perspective, an asset sale offers three meaningful advantages.
Step-up in base cost. When a buyer acquires assets, those assets are entered onto their balance sheet at the acquisition price. This creates a higher depreciation base going forward, which reduces their future tax bills. In a share sale, the assets remain on the target company's books at their existing written-down values. The buyer gets no step-up.
Cherry-picking. In an asset sale, the buyer can select which assets they want and leave behind anything they do not. Redundant equipment, legacy pension obligations, disputed contracts, or historic tax liabilities. This is a significant risk-management advantage.
Avoiding inherited liabilities. In a share sale, the buyer takes on every liability the company carries, disclosed or not. Warranties and indemnities offer some protection, but no buyer relishes the prospect of discovering a PAYE underpayment from five years ago after the deal has closed. An asset sale sidesteps much of that exposure by design.
How does the negotiation between buyer and seller play out?
In practice, most deals in the UK mid-market begin as share sales from the seller's perspective and as asset sales from the buyer's. The resolution depends on leverage, deal size, and how motivated each party is.
A few things tend to influence the outcome:
- If the buyer is a trade acquirer buying a business in their own sector, they often accept a share sale. Particularly if the target has valuable contracts that cannot easily be novated in an asset sale.
- If the buyer is a financial buyer (a small private equity house, family office, or search fund), they may push harder for an asset structure for the liability protection it offers.
- Tax indemnities can partially bridge the gap. A buyer accepting a share sale will typically require strong warranties and a tax deed covering pre-completion periods.
- Price grossing-up is sometimes used. The buyer agrees to a share sale but at a slightly lower headline price to compensate for the lost step-up in base cost. This can work for both parties if the numbers stack up.
- Earnouts and deferred consideration structures do not change the fundamental share vs asset question, but they can make buyers more comfortable accepting a share sale if risk is partially deferred.
The reality is that if you have a genuinely attractive business with competitive interest from multiple buyers, you are more likely to achieve a share sale on your preferred terms. If you have a single motivated buyer and limited alternatives, expect more pressure on structure.
What is a TOGC and why does it matter?
A Transfer of a Going Concern (TOGC) is a specific VAT treatment that applies to asset sales in certain circumstances. Under TOGC rules, the sale of a business as a going concern is treated as neither a supply of goods nor a supply of services for VAT purposes. Meaning no VAT is charged on the transaction itself.
For a TOGC to apply, certain conditions must be met: the assets being transferred must constitute a business capable of independent operation, the buyer must be VAT-registered (or become so as a result of the transfer), and the business must be carried on by the buyer after the transfer.
Why does this matter? In a straightforward asset sale, without TOGC treatment, VAT would potentially be chargeable on assets like property or goodwill. For the buyer, VAT may be reclaimable, but there is a cash flow cost and added complexity. TOGC treatment removes that friction entirely.
If you are in a transaction structured as an asset sale, confirming TOGC eligibility with your tax adviser early in the process avoids complications at completion.
How is goodwill taxed in an asset sale?
Goodwill is often the most valuable single asset in a service or knowledge-based business. And it is where the tax treatment in an asset sale gets complicated.
For the seller (the company): When the company sells goodwill as part of an asset sale, the gain is taxed at the main corporation tax rate. Currently 25% for companies with profits above £250,000. There is no equivalent of BADR at the company level. The after-tax proceeds then sit inside the company, and extracting them personally adds a further layer of tax as described above.
For the buyer: A buyer acquiring goodwill in an asset sale cannot currently claim Corporation Tax relief on the amortisation of purchased goodwill in most circumstances, following rule changes in 2015. There are limited exceptions. For instance, where goodwill is acquired alongside qualifying intellectual property. But the general position is that goodwill acquisition in an asset sale does not generate a deductible amortisation charge for the buyer.
This is one reason why the goodwill element of an asset deal requires careful structuring from both sides, and why sellers of goodwill-heavy businesses have a particularly strong interest in achieving a share sale.
This article contains general information only and does not constitute financial or tax advice. Every business sale is different. Speak to a qualified UK tax adviser about your specific situation before making any decisions.
Comparison: Share Sale vs Asset Sale. Key Tax Differences
| Factor | Share Sale | Asset Sale |
|---|---|---|
| Who receives proceeds | Selling shareholders directly | The company first |
| CGT / BADR eligibility | Yes. CGT at 14%–24%; BADR on first £1m | No. Company pays Corporation Tax at up to 25% |
| Double tax risk | None | Yes. Corp Tax + Income Tax to extract proceeds |
| Buyer step-up in base cost | No | Yes |
| Historic liability exposure | Buyer inherits all liabilities | Buyer can exclude unwanted liabilities |
| VAT treatment | No VAT on share transfer | TOGC rules may apply to exempt the sale |
| Goodwill tax treatment | CGT on gain in shareholder's hands | Corporation Tax in company; buyer relief restricted |
| Complexity at completion | Lower. One asset transfers | Higher. Each asset must be individually transferred |
FAQ
Can I insist on a share sale? You can negotiate for one, and most sellers do. Whether you achieve it depends on the buyer's appetite and your alternatives. A competitive process with multiple interested parties gives you the strongest position.
Does BADR apply to asset sales? Not in the same way. BADR applies to gains made by individuals, not by companies. In an asset sale, the company realises the gain, not you personally. There is no equivalent relief at company level.
What happens to employees in a share sale vs asset sale? In a share sale, employees remain employed by the same company. Nothing changes. In an asset sale, TUPE (Transfer of Undertakings (Protection of Employment) Regulations) typically applies, meaning employees transfer to the buyer on their existing terms. TUPE compliance is the buyer's responsibility post-transfer, but it adds process.
Can an asset sale be structured to reduce the double tax problem? To some extent. Careful allocation of consideration across different asset categories. For example, allocating more to stock or plant that is taxed differently. Can reduce the overall burden. This requires specialist tax advice and agreement with the buyer on how consideration is apportioned.
What is a TOGC and do I need to worry about it? A TOGC (Transfer of a Going Concern) is a VAT treatment that can eliminate VAT on an asset sale where certain conditions are met. If you are selling assets rather than shares, your tax adviser should confirm early in the process whether TOGC applies. It is not automatic.
Does the deal structure affect how earnouts are taxed? Yes. In a share sale, earnout payments are generally treated as additional capital proceeds and taxed as CGT. In an asset sale, the position is more complex and depends on how the earnout is structured. This is a specific area where early tax advice is worth the investment.
Find Out What Your Business Is Worth
Before you can weigh up deal structures, you need a realistic view of valuation. Use the free valuation calculator on the Succession Group website to get a sense of where your business sits against current market multiples. And what a share sale might actually put in your pocket after tax.