TRW & Co · Tax, Private Wealth & Family
M&A and Transaction Tax Advisers in London
Transaction tax advisers London buyers, sellers and investors instruct decide who pays what tax on a deal and who carries the risk of hidden liabilities. With Business Asset Disposal Relief at 18% from April 2026 and employee ownership trust relief halved, the structure of a sale now matters more than ever to the net price.
Key pointOn a share purchase the buyer inherits the target's entire tax history, so the tax covenant, not the headline price, often determines who ultimately pays for pre-completion liabilities.
At a glance
BADR now 18%
Business Asset Disposal Relief rose from 14% to 18% for disposals from 6 April 2026, still subject to the £1 million lifetime limit.
0.5% stamp duty
Paper share transfers over £1,000 attract 0.5% stamp duty, payable with the stamped form within 30 days of signing.
30-day clearances
HMRC aims to answer statutory clearance applications for share exchanges, reconstructions and transactions in securities within 30 days.
EOT relief halved
For disposals to employee ownership trusts on or after 26 November 2025, only half of the seller's gain is relieved from capital gains tax.
Pillar Two in scope
Groups with consolidated revenues over €750 million face UK top-up taxes, so acquisitions can change a group's minimum tax position.
Swipe or scroll →
What transaction tax advisers London deal teams instruct actually do
Transaction tax advisers London buyers, sellers and investors instruct work out who pays what tax on a deal, when it is paid and who bears the risk of tax that has not yet surfaced. On a typical acquisition that means structuring the purchase, protecting the buyer through warranties and a tax covenant, helping the sellers secure the reliefs available to them, and dealing with stamp taxes, VAT and HMRC clearances.
Tax rarely decides whether a deal happens, but it often decides the price and the shape. Whether a business is sold as shares or assets, whether sellers take cash, shares or loan notes, and whether a holding company sits in the UK or abroad can each change the net proceeds materially. A structure that looks efficient on paper can also be counteracted by anti-avoidance rules if the commercial reasons are not documented.
The legal question usually arises at three points: when heads of terms are agreed, when due diligence reveals historic exposures, and when the sale and purchase agreement is negotiated. The best results come from transaction tax advisers London corporate teams involve at heads of terms, before the price and structure have been fixed.
The legal framework for M&A tax in the UK
There is no single transactions tax code. Capital gains are governed by the Taxation of Chargeable Gains Act 1992, which contains the share-for-share exchange and reconstruction rules and, in Schedule 7AC, the substantial shareholding exemption. Corporation tax rules sit mainly in the Corporation Tax Acts 2009 and 2010. The Income Tax Act 2007 contains the transactions in securities rules, beginning at section 701, which can recharacterise a capital return as income.
Stamp duty on share transfers dates back to the Stamp Act 1891, with stamp duty reserve tax applying to agreements to transfer shares, including electronic transfers. Stamp Duty Land Tax applies to land in England and Northern Ireland; Scotland has Land and Buildings Transaction Tax and Wales has Land Transaction Tax. VAT on business sales is governed by the Value Added Tax Act 1994 and the transfer of a going concern rules explained in HMRC's VAT Notice 700/9.
For large groups, the Multinational Top-up Tax and Domestic Top-up Tax, the UK's implementation of the OECD Pillar Two global minimum tax, apply to groups with consolidated annual revenues of more than €750 million for accounting periods beginning on or after 31 December 2023. Acquisitions can bring a target into or out of scope, which affects modelling and the tax covenant.
Share sale or asset sale: the core structuring decision
Buyers and sellers often want opposite things. Sellers generally prefer a share sale, because the gain is taxed once at shareholder level and reliefs may apply. Buyers often prefer an asset purchase, because they can pick the assets and liabilities they take on and may obtain tax deductions for the price paid. Our guide to share purchase or asset purchase covers the commercial side; the tax comparison is summarised below.
| Issue | Share sale | Asset sale |
|---|---|---|
| Who is taxed on the gain | The shareholders; individuals pay capital gains tax, corporate sellers may be exempt under the substantial shareholding exemption | The company on its gains and balancing charges, then the shareholders again when proceeds are extracted |
| Historic tax liabilities | Stay with the company and pass to the buyer, hence the tax covenant and warranties | Generally stay with the seller company |
| Stamp taxes | Stamp duty or SDRT at 0.5% on the consideration for shares | SDLT (or LBTT/LTT) on land; no stamp duty on most other assets |
| VAT | A sale of shares is normally exempt | Outside the scope if the conditions for a transfer of a going concern are met; otherwise VAT may be chargeable |
| Buyer's tax base | No step-up in the value of underlying assets | Cost of assets can generate capital allowances or intangible deductions |
| Losses and attributes | Stay in the company, subject to restrictions after a change of ownership | Generally not transferred |
Hybrid structures are common. A seller may hive the wanted business into a new subsidiary before selling its shares, or a buyer may acquire most of the business as shares but take specific assets, such as property or intellectual property, separately. Each step has its own tax consequences, including possible degrouping charges, SDLT and VAT, so transaction tax advisers London buyers and sellers appoint should map every step before it is agreed.
Price allocation also matters. On an asset sale, the split of the consideration between goodwill, plant, property and stock affects the seller's balancing charges and the buyer's future deductions. The parties should agree the allocation in the contract rather than leave it to be argued with HMRC later.
Seller tax: reliefs, rates and consideration
Individual founders and managers
Individuals pay capital gains tax at 18% within the basic rate band and 24% above it. Business Asset Disposal Relief reduces the rate on qualifying gains, up to a £1 million lifetime limit.
The rate was 10% until 5 April 2025, 14% for 2025-26 and has been 18% from 6 April 2026. To qualify on a share sale, the seller generally must have been an officer or employee and held at least 5% of the shares and votes for the two years before the sale, among other conditions. Our guide to capital gains tax on selling a business explains the conditions in detail.
Where sellers take shares or loan notes in the buyer, the share-for-share exchange rules can defer the gain until the new securities are sold. Deferral depends on the exchange being made for bona fide commercial reasons and not mainly to avoid tax, which is why advance clearance under section 138 of the 1992 Act is commonly sought. Earn-outs, deferred consideration and loan notes each have their own timing rules, and the choice between them can accelerate or defer tax significantly.
Corporate sellers and the substantial shareholding exemption
A company disposing of shares in a trading company can be exempt from tax on the gain under the substantial shareholding exemption. HMRC's Capital Gains Manual explains that the seller must hold at least 10% of the ordinary share capital, with matching entitlements to profits and assets, and the shareholding must have been held for a continuous period of at least 12 months. The trading status of the company being sold must be checked carefully, especially where it holds investments or surplus cash.
Employee ownership trust sales
Selling a controlling interest to an employee ownership trust used to be free of capital gains tax for qualifying sellers. For disposals on or after 26 November 2025, the relief was reduced so that only half of the gain is relieved and the other half is taxed, and Business Asset Disposal Relief cannot be combined with it. EOT sales can still work, but the comparison with a trade sale needs to be redone.
The price in the heads of terms is not the price the seller keeps. Structure, consideration and timing decide the net figure.
Buyer protection: due diligence, warranties and the tax covenant
On a share purchase the buyer inherits the target's tax history. Tax due diligence identifies exposures in corporation tax, PAYE, VAT, transfer pricing, employment-related securities and stamp taxes. Transaction tax advisers London buyers appoint then translate those findings into price adjustments, specific indemnities or conditions.
The sale agreement typically contains tax warranties, which require the buyer to prove loss, and a tax covenant or deed, which gives a pound-for-pound indemnity for pre-completion tax. The covenant allocates liabilities by reference to the completion date, deals with conduct of HMRC enquiries and sets limitation periods that track HMRC's assessment time limits. Where warranty and indemnity insurance is used, known issues are usually excluded from cover, so specific indemnities still matter.
Buyers should also consider their own position after completion: the deductibility of acquisition costs, restrictions on using the target's losses, the corporate interest restriction on acquisition debt, group relief and the payment and filing obligations that switch to the new group. Experienced transaction tax advisers London investors use will also check that the buyer's financing structure works for tax before signing. Our mergers and acquisitions team negotiates these provisions as part of the main transaction documents.
How transaction tax advisers London deal teams run a deal
- Structure at heads of terms. Agree share or asset sale, consideration form, holding company location and any pre-sale reorganisation, and model the net outcome for each party.
- Seek HMRC clearances. Where share exchanges, reconstructions, demergers, purchases of own shares or transactions in securities are involved, submit a single statutory clearance application. HMRC aims to respond within 30 days.
- Carry out tax due diligence. Review returns, computations, HMRC correspondence, payroll and share scheme records, VAT and stamp duty history.
- Negotiate the documents. Settle the tax warranties, tax covenant, disclosure letter, completion accounts and any locked-box leakage provisions.
- Prepare completion. Check that pre-sale reorganisations and dividends have happened in the right order and that elections and claims are signed.
- Stamp and file. For paper share transfers, submit the stock transfer form and pay stamp duty to HMRC within 30 days of signing; file SDLT returns for land transfers.
- Integrate after completion. Align accounting periods, VAT grouping, transfer pricing and payroll in the buyer's group, and track tax covenant claim deadlines.
Documents and evidence to assemble
Tax returns and computations
Corporation tax returns and computations for the open years, with HMRC correspondence, enquiry closures and any open disputes. These show where the risk sits.
Group and share history
Group structure charts, previous reorganisations, clearance letters and share issues. Past reorganisations can create degrouping charges or affect relief on the sale.
Employment taxes
PAYE and NIC records, share scheme registrations, EMI notifications and annual returns. Incentive defects are a frequent source of price chips.
VAT and stamp taxes
VAT returns, partial exemption calculations, option to tax notifications, SDLT returns and evidence that historic share transfers were stamped.
Seller relief evidence
Shareholding and employment history supporting Business Asset Disposal Relief, and trading status evidence for the substantial shareholding exemption.
Cross-border papers
Residence certificates, treaty claims, withholding tax records and transfer pricing documentation for any non-UK entities or transactions.
Risks and common mistakes on deals
Transactions in securities counteraction
The transactions in securities rules allow HMRC to treat a capital receipt as income where shareholders of a close company receive value in a way that avoids income tax. Pre-sale dividends, share buybacks, liquidations followed by restarts and some sales to connected companies can fall within the rules. The consequence is that a gain expected to be taxed at capital rates is taxed at dividend rates instead. Where there is doubt, clearance under section 701 of the Income Tax Act 2007 should be sought before the transaction, setting out the commercial reasons honestly and in full.
Degrouping charges and pre-sale reorganisations
Where assets have been moved between group companies on a tax-neutral basis and the receiving company then leaves the group, a degrouping charge can arise. In many cases the charge is added to the seller's disposal proceeds and may be covered by the substantial shareholding exemption, but intangible assets and SDLT group relief have their own clawback rules. Pre-sale hive-downs and reorganisations must be planned with these rules in mind. Buyers should ask for a full history of intra-group transfers and protection in the tax covenant.
Failing a transfer of a going concern
On an asset sale, VAT is not charged if the conditions for a transfer of a going concern are met: broadly, the business is transferred as a going concern, the buyer carries on the same kind of business and, where relevant, is VAT registered. Where property is involved and the seller has opted to tax, the buyer must also opt to tax and notify HMRC in time.
If the conditions fail, VAT may have been chargeable, and a seller that did not charge it may have to account for it out of the price. The sale agreement should include an appropriate VAT clause and a mechanism for adding VAT if HMRC disagrees.
Forgetting secondary liabilities and stamp duty
Tax law can make one company liable for another's unpaid tax, for example within VAT groups or where a former group company fails to pay corporation tax. Buyers should check whether the target has been in a VAT group or has guaranteed group tax obligations. Separately, historic share transfers that were never stamped can cause problems: an unstamped instrument cannot generally be relied on in evidence, and late stamping carries interest and penalties. Both issues are cheaper to resolve before completion than after.
Management equity taxed as employment income
Where managers sell shares or roll into a new structure, the employment-related securities rules can apply. If managers acquired shares at an undervalue, without a section 431 election, or receive more than market value because of their employment, part of their proceeds may be taxed as employment income through payroll. That creates a PAYE and NIC liability for the employer, which the buyer inherits. Transaction tax advisers London buyers appoint usually require elections and valuations to be in place, and coordinate with share plan advisers on option treatment.
If you are selling a company you founded, check your Business Asset Disposal Relief position at least two years before a likely sale. Shareholding dilution in funding rounds, ceasing to be an officer or employee, or the company holding substantial non-trading assets can each remove the relief, and the qualifying period cannot be created at the last minute.
Cross-border deals: Bangladesh, the Gulf, Singapore and the EU
Many London deals involve an overseas buyer, seller or target. The structuring questions are where holding companies should sit, whether dividends and interest can be paid without withholding tax, how gains are taxed in each country and whether a treaty gives relief. Non-UK residents can also be charged UK tax on gains from UK land and on certain disposals of companies whose value derives mainly from UK land.
For transactions between the UK and Bangladesh, the double taxation agreement between the two countries allocates taxing rights on business profits, dividends, interest and gains; our guide to the UK–Bangladesh double taxation agreement sets out how it works. Bangladeshi investors buying UK businesses also need to consider Bangladesh's foreign exchange rules on outbound investment, which TRW & Co's Dhaka office advises on.
Investors from the United Arab Emirates and Singapore often use holding companies in their home jurisdiction. Whether those companies benefit from UK treaties depends on substance, beneficial ownership and the principal purpose test in modern treaties. For EU targets and sellers, local transfer taxes and exit taxes may apply. On larger deals, Pillar Two top-up tax calculations must be considered across all jurisdictions in which the combined group operates.
How TRW & Co helps as transaction tax advisers London businesses can rely on
TRW & Co's London office is authorised and regulated by the Solicitors Regulation Authority. We advise on the legal and tax aspects of transactions, working alongside your accountants on computations and modelling, and our tax and corporate lawyers sit on the same deal team.
Structuring and clearances
Share and asset sale structuring, pre-sale reorganisations, holding company design and HMRC clearance applications under the statutory clearance procedure.
Tax due diligence
Focused legal tax due diligence reports for buyers and investors, with red-flag summaries that feed directly into price and protection negotiations.
Tax covenants and warranties
Drafting and negotiating tax warranties, tax deeds and specific indemnities for private equity and trade transactions, including insured deals.
Disputes after completion
Handling tax covenant claims and HMRC enquiries that arise from pre-completion periods, with our tax disputes team where litigation is needed.
We also advise founders on buying and selling a business, from preparing for a sale to negotiating the final terms.
Checklist for decision-makers
- Bring transaction tax advisers London deal teams use into the process at heads of terms, before the structure is fixed.
- Model the net proceeds of a share sale and an asset sale for every party.
- Confirm each seller's capital gains tax position and eligibility for Business Asset Disposal Relief.
- For corporate sellers, test the substantial shareholding exemption, including trading status.
- Identify which HMRC clearances are needed and allow at least 30 days for a response.
- Scope tax due diligence to the risks that matter for this target.
- Negotiate a tax covenant with clear conduct of claims and limitation periods.
- Check VAT on asset sales and whether a transfer of a going concern applies.
- Stamp share transfers within 30 days and file any SDLT returns on time.
- For cross-border structures, check treaty access, withholding taxes and Pillar Two exposure.
To discuss a transaction, contact TRW & Co at Holborn Gate, 330 High Holborn, London WC1V 7QH, or email info@trw.co. You can explore our other services on our practices page.
Frequently asked questions
01Is it better to sell my company as a share sale or an asset sale?
For most individual sellers a share sale is more tax-efficient, because the gain is taxed once at capital gains tax rates and Business Asset Disposal Relief may apply. An asset sale is taxed in the company and again when proceeds are extracted. Buyers may prefer assets because they avoid inheriting historic liabilities and may get tax deductions. The right answer depends on the business, the buyer and the reliefs available, so model both before agreeing heads of terms.
02What rate of capital gains tax will I pay on selling my business?
Individuals pay capital gains tax at 18% on gains within the basic rate band and 24% above it. If you qualify for Business Asset Disposal Relief, qualifying gains up to the £1 million lifetime limit are taxed at 18% for disposals from 6 April 2026, compared with 14% in 2025-26 and 10% before that. Conditions include holding at least 5% of the shares and votes and being an officer or employee for two years before the sale.
03What is a tax covenant and why does a buyer need one?
A tax covenant, sometimes called a tax deed or tax indemnity, is a promise by the sellers to pay the buyer for any tax of the target that relates to the period before completion and was not provided for in the accounts. Unlike a warranty claim, the buyer does not have to prove a reduction in the value of the shares. The covenant also sets out who controls HMRC enquiries, how claims are made and when they must be brought.
04When do we need an HMRC clearance on a transaction?
Clearance is commonly sought where sellers receive shares or loan notes in exchange for their shares, on reconstructions and demergers, where a company buys back its own shares, and where the transactions in securities rules might apply. Clearance gives certainty that HMRC accepts the transaction is for genuine commercial reasons. A single application can cover several provisions, and HMRC aims to respond within 30 days of receiving a complete application.
05Is stamp duty payable when buying shares in a private company?
Yes. A transfer of shares in a UK company using a stock transfer form is subject to stamp duty at 0.5% of the consideration, rounded up to the nearest £5, unless the consideration is £1,000 or less. The form must be sent to HMRC with payment within 30 days of signing. Agreements to transfer shares can also give rise to stamp duty reserve tax. Late stamping attracts interest and penalties.
06Can a company sell a subsidiary free of tax?
Often, yes. The substantial shareholding exemption can exempt a gain made by a company on selling shares in a trading company or trading group, where the seller held at least 10% of the ordinary share capital for a continuous period of at least 12 months. The trading status of the target is critical, so significant investment activity or surplus cash can put the exemption at risk. Losses on such disposals are correspondingly not allowable.
07Do UK tax rules apply if the buyer or seller is overseas?
Usually some do. Non-UK residents can be taxed on gains from UK land and certain UK property-rich companies, stamp duty applies to transfers of UK company shares wherever the parties are, and UK companies may have to withhold tax on some payments. Double taxation agreements, such as the UK–Bangladesh agreement, can reduce or remove UK tax, depending on the facts. Local advice in the other jurisdiction is also needed.
Sources and official materials
- Apply for statutory clearance for a transaction — HMRC clearance procedure and timescales
- Business Asset Disposal Relief — Rates, conditions and the lifetime limit
- Tax when you buy shares — Stamp duty and SDRT on share purchases
- VAT Notice 700/9: transfer of a business as a going concern — VAT on business sales
- Taxation of Chargeable Gains Act 1992, Schedule 7AC — Substantial shareholding exemption
- Income Tax Act 2007, section 701 — Transactions in securities
- Preparing for the Multinational Top-up Tax and the Domestic Top-up Tax — UK Pillar Two rules
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.