Planning Your Business Exit with Strategy, Tax Efficiency & Purpose
David Hackett · Posted on: August 1st 2025 · read
Deciding to exit a business is arguably the biggest business decision an owner-manager can make. With several options available it is important to ensure that the chosen route is right for the owner, right for the business, and right for the staff that remain in the business post sale.
Three of the most common exit strategies include:
- Trade Sale
- Management Buyout (MBO), and more recently;
- Sale to an Employee Ownership Trust (EOT).
Each of these strategies come with commercial advantages and disadvantages and different tax implications which an owner needs to ensure they fully understand so that they can plan accordingly.
Some of the key features of the three strategies can be summarised as follows:
| Trade Sale | MBO | EOT | |
|---|---|---|---|
| Buyer | Third party | Management team | Trust for the benefit of employees |
| Valuation | Arm’s length negotiation – may include strategic premium | Market value | Not more than market value |
| Cash | More upfront | Largely deferred | Largely deferred |
| Due diligence | Lengthy process with full warranties and indemnities | Less onerous than Trade Sale – limited warranties and indemnities | Less onerous than Trade Sale – limited warranties and indemnities |
| Tax | Capital gains tax – 14% / 24% | Capital gains tax – 14% / 24% | Nil (subject to conditions) |
Differing tax implications
In the context of a share sale, the consideration received under a Trade Sale or MBO can take many forms, including cash on completion, deferred consideration, earn-outs, loan notes and rollover equity.
The basic principle is that all forms of cash consideration (completion, deferred, and earn-outs) are taxable upfront, irrespective of when the cash is due to be paid. For example, a share sale completed in the current tax year would be included in a 2025/26 tax return with the tax falling due for payment to HMRC on 31 January 2027.
Deferred consideration is included in the tax computation at its full value without any discount. With an earn-out, it is necessary to place a value on the right to receive future consideration and pay tax upfront on that initial value. If the earn-out ultimately pays more than the initial value, further tax will be due in the year of payment.
"In the scenario where some of the deferred consideration is never paid, or the earn-out pays less than the initial value, there are separate mechanisms for obtaining a refund from HMRC for the overpaid tax."
The tax on loan note consideration can be deferred until the loan notes are redeemed and the specific tax treatment will depend on whether or not the loan notes are Qualifying Corporate Bonds (QCBs).
Rollover equity is not taxable upfront. In a share for share exchange, the new shares ‘stand in the shoes’ of the old shares, treated as being acquired at the same time and for the same price, and hence not triggering a tax charge.
With loan note and/or share consideration, it may be possible in the right circumstances, for an individual to elect to pay tax on this consideration upfront and ‘lock in’ the current rates of tax.
Assuming the individual is a higher rate taxpayer, the standard rate of capital gains tax is 24%. Where an individual is selling shares in a trading company, subject to conditions, the first £1million of lifetime gains may be taxed at a lower rate of 14% under the rules for Business Asset Disposal Relief (BADR). Note that the BADR rate is due to rise to 18% from 6 April 2026.
The default tax position is that share sales are subject to capital gains tax. However, owners should be aware of the ‘Transactions in Securities’ rules which can subject some of the consideration to higher rates of income tax, particularly in MBO scenarios where the funds are coming from within the company. It is advisable to obtain advance clearance from HMRC to confirm these anti-avoidance rules will not bite.
By contrast, and where structured correctly, a sale of shares to an EOT can be completely tax-free. The essential components of such a transaction are that the trustees acquire a controlling stake in a trading company and that the trust is for the benefit of all employees.
Exit smart by planning ahead
Whichever exit strategy is chosen, always plan ahead, and remember it is never too early to start considering your options. Advice should be sought from a Corporate Finance, Taxation and Wealth Management perspective to ensure everything is joined up and all aspects of an exit are being considered.
You may want to consider any tax planning that could be implemented ahead of a sale, for example, establishing a family trust for the benefit of the next generation.
In addition, owners should consider the current management team and whether they are suitably incentivised, perhaps via a share option scheme, to drive growth and value in the business ready for sale.
How MHA can help
Not sure which route is right for your business? Let’s talk through your options.
Whether you're years away from stepping back or already weighing up your options, taking early advice is key to securing the best outcome for you, your business, and your people.
At MHA, our tax, corporate finance, and wealth management specialists work together with a seamless, integrated approach to help business owners plan their exit effectively and achieve their personal and business goals.
Contact our private client tax team to discuss this matter further, or with any other tax-related queries.
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