Selling or Closing a Limited Company

Business Asset Disposal Relief has very nearly doubled in two years — from 10% to 18% — and HMRC itself has openly acknowledged that business owners have been bringing their exits forward specifically to beat the rate rises. That tells you everything about how much timing matters when you're closing or selling a company. The same business, sold or closed a year apart, can leave its owner with a genuinely different tax bill, purely because of when the paperwork was signed.

I've sat with directors at both ends of this conversation — some winding down a company that's simply run its course, others selling a business they've spent a decade building. The tax treatment couldn't be more different depending on the route taken, and the biggest mistakes I see happen when a director decides how they're closing the company before checking what that decision actually costs. This guide walks through every route, and the tax that follows each one.

What Happens to Tax When I Close My Limited Company?

The Route You Choose Changes Everything

Striking off, a formal liquidation, or selling the shares outright each carry meaningfully different tax consequences — sometimes the difference between money taxed as income at up to 45% and the same money taxed as a capital gain at 18%. There's no single "correct" way to close a company; the right route depends on how much is left in it, and what you're planning to do next.

Company-Level Tax Before Closure

Before any of the personal tax questions arise, your company itself needs to settle its own affairs — a final Company Tax Return, any outstanding corporation tax paid, and final accounts filed. None of the closure routes below sidestep this step; they simply determine what happens to whatever's left once the company side is squared away.

Personal Tax on What You Extract

This is where the real planning value sits. The same pot of money, extracted from a closing company, can be taxed as a dividend, taxed as a capital gain, or in some cases relieved almost entirely, depending on the route and the amount involved — which is exactly why this decision deserves a proper conversation before it's made, not after.

Striking Off a Limited Company

How Striking Off Works

Striking off is the simplest, most informal route — an application to Companies House to have the company removed from the register, typically used where a company has modest reserves and straightforward affairs. The company must have stopped trading, and generally needs to have been non-trading for at least three months before the application.

The £25,000 Informal Distribution Rule

Here's the detail that matters most for tax purposes: if the total distributions made to shareholders as the company winds down come to £25,000 or less, they can generally be treated as capital rather than income, without needing a formal liquidation at all. Above that £25,000 threshold, informal distributions default to being taxed as income — dividend tax rates, not capital gains tax rates — unless a formal liquidation route is used instead. For a company with modest final reserves, this threshold is often the deciding factor in whether striking off remains the sensible option.

When Striking Off Isn't the Right Choice

Once reserves push meaningfully above £25,000, the tax cost of an informal strike-off can be considerably higher than the alternative. This is precisely where a formal Members' Voluntary Liquidation earns its cost, covered next.

Members' Voluntary Liquidation

When an MVL Makes Sense

A Members' Voluntary Liquidation is a formal process, requiring a licensed insolvency practitioner to be appointed as liquidator, used where a solvent company has more substantial reserves than the £25,000 informal route comfortably allows. It's the route we recommend most often for a genuinely successful company reaching a natural close, precisely because of the tax treatment it unlocks.

How It Differs From Striking Off

Distributions made through a formal liquidation are treated as capital, regardless of the amount involved — there's no £25,000 ceiling to worry about. That capital treatment is also what opens the door to Business Asset Disposal Relief, covered in detail further down this guide, potentially reducing the tax rate on a significant final distribution considerably below what dividend tax would otherwise have cost.

The Cost Trade-Off

An MVL isn't free — the liquidator's fees need factoring into the decision, and they scale with the complexity and value of the company's affairs. For a company with modest reserves, that cost can outweigh the tax saved. For a company with substantial reserves and a founder who's held their shares for years, the tax saving from capital treatment and Business Asset Disposal Relief very often dwarfs the liquidator's fee by a significant margin.

Taking Money Out Before Closing a Company

Order of Operations Matters

Timing genuinely changes outcomes here. Drawing everything out as salary or dividends before beginning a formal closure process locks in income tax treatment on that money. Leaving reserves in the company and extracting them through a properly structured liquidation instead can convert the same money into a capital gain, taxed at a materially lower rate for most higher-rate taxpayers.

Dividends vs Capital Treatment

A dividend, taxed at up to 39.35% for an additional-rate taxpayer, and a capital gain qualifying for Business Asset Disposal Relief, taxed at 18%, represent two very different outcomes on the same underlying sum of money. Getting the sequencing right — rather than drawing dividends out of habit right up until the point of closure — is one of the highest-value pieces of advice we give a director planning to wind down.

Director's Loan Accounts on Closure

If your director's loan account is overdrawn when you begin closing the company, it needs to be repaid, or it becomes a genuine problem for the liquidator and, potentially, for you personally. This is exactly why we recommend reviewing your loan account position well before any closure process begins, not once a liquidator is already involved and asking difficult questions.

Capital Gains Tax When Selling Company Shares

Selling Shares vs Selling the Business's Assets

Selling your shares in the company, rather than having the company sell its own assets and then extracting the proceeds, triggers Capital Gains Tax on your personal gain rather than corporation tax on the company's gain followed by income or dividend tax layered on top when you extract the proceeds. For most owner-managed company sales, a share sale is considerably more tax-efficient for the seller — though buyers sometimes prefer an asset purchase for their own reasons, which is exactly the kind of tension a good adviser helps you navigate during negotiations.

The Main CGT Rates for 2026/27

Where Business Asset Disposal Relief doesn't apply, gains on selling shares are taxed at the standard Capital Gains Tax rates — 18% for gains falling within your remaining basic rate band, and 24% for gains above it, for 2026/27.

The Annual Exempt Amount

Every individual has a modest annual exempt amount — £3,000 for 2026/27 — that reduces a taxable gain before either rate applies. It's a small figure by today's standards, but it's not nothing, and every gain-reducing allowance is worth using properly.

Business Asset Disposal Relief

The 18% Rate for 2026/27

Business Asset Disposal Relief — the modern name for what many directors still remember as Entrepreneurs' Relief — reduces the Capital Gains Tax rate on a qualifying disposal to 18% for 2026/27. That's up considerably from the 10% rate that applied before April 2025, having stepped up through 14% in between, and it's a genuinely significant erosion of the relief's value over a short period.

The Qualifying Conditions

To qualify, you generally need to have held at least 5% of the company's ordinary share capital and voting rights, the company needs to have been a genuine trading company throughout, and you need to have been an officer or employee of the company, all for a continuous period of at least two years before the disposal.

The £1 Million Lifetime Limit

The relief applies to a lifetime limit of £1 million of qualifying gains per individual — not per company, and not per transaction, but across your entire lifetime of qualifying disposals. Once that limit is used, further qualifying gains revert to the standard CGT rates. Spouses and civil partners each have their own separate £1 million limit, which is worth factoring into planning where both hold shares in the same company.

Worked Example

Take a director selling shares in their company for a £600,000 gain, having met all the qualifying conditions. At the 18% BADR rate, after the £3,000 annual exempt amount, the tax bill comes to roughly £107,460. Without the relief, the same gain taxed at the standard 24% higher rate would cost around £143,280 — a difference of nearly £36,000 on this single transaction, even at today's higher 18% BADR rate.

Why Timing Matters More Than Ever

Given how sharply the rate has already risen, and given HMRC's own observation that disposals have been brought forward specifically to beat further increases, this is genuinely not an area to leave until the last minute if you're contemplating a sale or closure in the next year or two. Checking your qualifying position early — the shareholding, the holding period, the employment status — gives you time to fix anything that might otherwise disqualify the relief, rather than discovering a problem once the sale is already agreed.

Closing or selling a company is rarely just a legal or administrative decision — it's a tax decision with genuinely significant numbers attached, and the right structure depends entirely on your own company's reserves, your shareholding, and how long you've held it. If you're starting to think about winding down or selling, get in touch with the team at Cannon Accountants well before you commit to a route. It's exactly the kind of conversation where early planning changes the final number considerably.

For the wider picture of how this fits alongside corporation tax, salary and dividends, and everything else covered in this series, head back to our complete Limited Company Tax Guide 2026/27: Corporation Tax, Dividends & Director Tax →.

Disclaimer:

The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.