Planning When Selling Your Business
Selling a business can be one of the biggest financial decisions you make. After years spent building a successful company, you may be preparing to retire, pursue another opportunity or secure your family's financial future. However, before selling your shares in a limited company, it is worth considering what you want to happen to the proceeds.
Would you prefer to receive the full sale price personally? Would you like to give some of the money to your children or grandchildren? Or could placing some of your shares into a trust before the sale offer advantages?
The timing of your estate planning can make a significant difference to the inheritance tax position. In some circumstances, transferring qualifying business shares into trust before a sale can be more tax-efficient than transferring cash afterwards.
At AFG Law, our Private Client solicitors advise business owners on estate planning, trusts and succession planning, helping them consider how a business sale fits into their longer-term plans for their families.
Why should you consider estate planning before selling your business?
When preparing your business for sale, it is natural to concentrate on finding a buyer, negotiating the price and completing the transaction. You may work with accountants, business brokers and corporate advisers to find the right buyer, assess the company's value and manage the sale process. However, estate planning deserves attention at the same stage.
Once a business has been sold, the proceeds will generally be held as cash or other investments. These assets are usually treated differently from qualifying trading company shares for inheritance tax purposes.
For a business owner considering a substantial gift to family members, this distinction can be important. Planning before completion may create opportunities that are no longer available post sale.
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Who should consider putting business shares into trust?
This type of planning is particularly relevant to shareholders selling interests in a trading business in the UK with a substantial value. For example, an owner selling shares worth £3 million or more may want to consider whether some of that value should be held for their children or grandchildren.
However, £3 million is not a legal threshold for using a trust. Whether the arrangements are worthwhile depends on the individual's circumstances, the value of the shares, available tax reliefs and the costs involved.
A trust may be useful where the business owner wants to provide for younger family members without giving them immediate control over a significant sum. Depending on the trust structure, trustees can manage the assets and decide when distributions should be made.
The person establishing the trust may also be able to act as a trustee, although their powers and any benefits they retain require careful consideration.
Why transfer shares into trust before a business sale?
The main potential advantage concerns Business Property Relief from inheritance tax. Certain shares in qualifying trading companies can benefit from this relief, provided the statutory conditions are met.
This can reduce the inheritance tax charge arising when qualifying shares are transferred into a trust.
By comparison, transferring a substantial amount of cash into a discretionary trust after selling a business may trigger an immediate inheritance tax charge.
For example, if someone transfers £6 million in cash into a discretionary trust and has their full £325,000 inheritance tax nil-rate band available, the lifetime inheritance tax charge could exceed £1.1 million, assuming the standard 20% rate applies and the tax is paid from the transferred funds.
Transferring qualifying business shares before the sale may produce a lower initial tax charge because Business Property Relief could apply.
However, a transfer of £6 million in shares is not automatically free of inheritance tax.
Since 6 April 2026, the 100% rate of Business Property Relief has generally been subject to a £2.5 million allowance for qualifying business and agricultural property, with 50% relief applying above that amount. Special rules also apply to trusts and earlier transfers. The precise tax outcome therefore requires individual calculations.
Why is timing so important?
One of the most important considerations is whether a binding contract for the sale of the shares already exists.
Under section 113 of the Inheritance Tax Act 1984, Business Property Relief is generally unavailable where the relevant business property is already subject to a binding contract for sale, subject to statutory exceptions.
This means leaving trust planning until the final stages of a transaction can significantly limit the available options.
Ideally, advice should be obtained before the sale arrangements become legally binding. That does not mean every transfer made shortly before completion will qualify for relief. The circumstances, documentation and timing of the transaction must be reviewed carefully.
If you are considering selling your business, it is sensible to discuss estate planning alongside your wider exit strategy from an early stage.
What about Capital Gains Tax?
Transferring shares into trust can also have Capital Gains Tax consequences. A gift of shares is generally treated as a disposal for Capital Gains Tax purposes, even where no money changes hands.
However, Gift Hold-Over Relief may be available where the relevant conditions are satisfied. This can allow a gain to be deferred rather than triggering an immediate Capital Gains Tax payment when the shares are transferred.
The trustees effectively take on the deferred gain, which may become taxable when the shares are subsequently sold. This does not eliminate the tax liability. It changes when and by whom the gain is taxed.
The availability of relief, the trust's tax position and the consequences for any other reliefs must all be considered before proceeding.
What else needs to be considered before transferring shares?
Although the potential tax savings can be substantial, putting shares into trust before a business sale is not straightforward. The company's Articles of Association and Shareholders' Agreement may restrict transfers or require consent from other shareholders. Approval might also be needed from lenders or other third parties.
Where potential buyers have already been identified, the proposed trust arrangements may need to be explained during negotiations and due diligence.
Other matters to consider include:
- Whether the trust would affect the proposed sale structure or exit route.
- How the transfer would be valued and documented.
- Whether the trust would create ongoing tax and reporting obligations.
- How the trustees would participate in the transaction.
- Whether the arrangements would affect the seller's personal tax reliefs.
A successful exit also requires coordination with the professionals handling the commercial transaction.
For example, advisers may already be reviewing the company's working capital, intellectual property, contracts and management team as part of preparing it for sale.
Trust planning should fit alongside this work rather than create unnecessary complications for the buyer or the sale timetable.
What happens to the trust after the business is sold?
If the trustees sell the shares, the proceeds may remain in trust for the intended beneficiaries. The trustees can then manage and distribute the assets in accordance with the trust terms and their legal responsibilities.
However, trusts have their own tax rules, including potential ten-year anniversary charges, exit charges and taxes on income or gains.
The inheritance tax treatment of the original transfer is therefore only one part of the overall planning.
It is important to consider the long-term costs and responsibilities alongside the potential savings.
Should you obtain advice even if you are not ready to sell?
Yes. Early advice can be valuable even if a business sale is several years away. Your preferred exit route may involve selling to a third party, transferring ownership to family members or arranging a management buyout. Each option can have different tax and estate planning implications.
Reviewing your arrangements early gives you more time to consider the available options and ensure a smooth transition when the time comes.
It also allows your legal and financial advisers to work together before commercial negotiations restrict what can be done.
Business sale and estate planning advice from AFG Law
AFG Law advises business owners and their families on Wills, trusts, inheritance tax planning and the transfer of business interests. Our Private Client team includes David Carson, a STEP member with more than 20 years' experience advising business owners on estate and succession planning.
We have offices in Bolton and Bury and assist clients throughout England and Wales.
We work alongside clients' accountants, corporate solicitors and other professional advisers to consider the estate planning implications of a proposed sale.
Whether you are preparing to sell your company or simply considering your options for the future, obtaining advice early could make a significant difference to the wealth you pass on.
To discuss planning before selling your business, contact AFG Law on 01204 377600, email privateclients@afglaw.co.uk or complete our online enquiry form.