Business Purchase – What You should ConsiderWritten on August 14, 2026 by Kirk Rice LLP
The Question:
I am planning on buying my own business but having been employed so far in my working life I am not really sure where to start. Are there any tax considerations with a business purchase?
Kirk Rice LLP answers:
There are many considerations when buying a business and to have an understanding of the tax implications is certainly one of them. In particular, one of the questions that arises is whether the business purchase should be by way of an acquisition of the trade and business assets of the target company, or of the shares in the target company. In summary, the following are the main tax considerations affecting the decision.
Buying shares in the target company
- One of the main tax advantages of buying shares in the target company is to the seller, in that the proceeds of the sale in the hands of the sellers should normally be treated as capital, subject only to capital gains tax, or corporation tax on capital gains. For individual sellers, the rate of capital gains tax for the disposal may be as low as 18%, so long as the seller qualifies for Business Asset Disposal relief.
- For corporate sellers, gains are often exempt under the “substantial shareholdings exemption”.
The main commercial disadvantage to buying shares in the target company is that the buyer inherits the target company’s history. This means that the purchaser may suffer loss for any liabilities of and claims against the target company, even if they arose during the ownership of the sellers. - The purchase of shares attracts stamp duty at the rate of 0.5% on the consideration for the transfer.
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Buying the business and assets from the target company
- An assets transaction is likely to be less attractive to the sellers than a share transaction. The acquisition of assets of the target company will normally result in some of the sale proceeds being liable to tax in the hands of the target company. There is a risk that the target company will have a significant tax liability on the sale of trade and assets in respect of the goodwill attaching to the trade.
- An additional tax charge will accrue on extracting the cash from the disposal of the trade and assets into the sellers’ hands.
- The acquiring company may find an asset acquisition advantageous from a tax perspective. Part of the consideration paid will be tax relievable, as the cost of stock or work in progress and some as expenditure qualifying for capital allowances.
- Stamp duty land tax (at rates of up to 17% in some circumstances) will be payable on the acquisition of any UK land and buildings included in the business purchase.
If you’re looking into a business purchase and would like our help, please email us at info@kirkrice.co.uk.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. Please note this information is correct on the date published and details may have changed since.
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