Comparison of share sale and trade and asset sale

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Comparison of share sale and trade and asset sale
  • Choice of transaction
  • Key differences in tax treatment
  • Other useful guidance

Choice of transaction

A purchasing company can acquire a business in one of two ways, either by purchasing the trade and assets or by purchasing the shares in the company operating the business.

Commercially, purchasers may prefer to buy the trade and assets. This is because they have the ability to negotiate exactly which assets are acquired, and which liabilities are left behind. Conversely, if the shares in the company are acquired the company’s entire history is transferred to the new owner, including its liabilities. The due diligence process, which is carried out prior to completion of the acquisition, aims to identify potential liabilities and obligations, and make recommendations to the purchaser as to how to deal with them or mitigate them (eg by price adjustment, underpinned by structure change).

On the other hand, the preferred option for vendors is often a share sale. Attractive reliefs are often available, depending upon the circumstances of the individual or company making the disposal. For example, Entrepreneurs’ relief may be available to an individual selling their shares in the company, resulting in up to £10m of capital gain being taxed at an effective rate of 10%. See the Conditions for entrepreneurs’ relief guidance note. Companies selling shares may qualify for the substantial shareholdings exemption (SSE) provided certain conditions are satisfied, which will render the resulting gain exempt from corporation

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