Selling a sole trade or partnership business is not a sale of one asset. For tax purposes it is a bundle of separate disposals: goodwill and premises are taxed as capital gains, trading stock is taxed as trading income, and plant and machinery is dealt with through capital allowances. The price must be split between them on a just and reasonable basis, and the capital gains can qualify for Business Asset Disposal Relief at 18% for disposals from 6 April 2026 if the whole or part of the business is sold after at least two years of ownership.

What is actually being sold?

A company owner can sell shares. A sole trader or partner has no shares to sell, so the buyer acquires the underlying assets. GOV.UK lists the business assets that can give rise to capital gains tax, including buildings, fixtures and fittings, plant and machinery, shares, registered trademarks and “your business’s reputation”, which is goodwill. CG68050 in HMRC’s Capital Gains Manual says the transfer of a business as a going concern involves the disposal of a number of separate assets, one of which will be goodwill even if it is not on the balance sheet, and that there must be a separate computation for each asset.

Sole traders and partners pay capital gains tax on these gains. Companies pay Corporation Tax instead, so this page is about individuals.

How is the sale price split between the assets?

Section 52(4) of the Taxation of Chargeable Gains Act 1992 requires any necessary apportionment of consideration to be made on a just and reasonable basis. CG68050 says that where buyer and seller are at arm’s length and not connected, HMRC must accept the allocation in the sale agreement provided it is just and reasonable. If the contract states a single undivided price, the assets have to be identified and an apportionment agreed. For trading stock sold with other assets, section 176(3) of the Income Tax (Trading and Other Income) Act 2005 applies the same just and reasonable test.

The split has real consequences, and the parties often want different things. A seller generally prefers more in goodwill, which may qualify for relief. A buyer may prefer more in plant and stock, which give faster tax deductions. An allocation that ignores commercial values will not hold.

Where the buyer is connected with the seller, for example a family member or a company the seller controls, sections 17 and 18 substitute market value for each capital asset; see gifts and market value.

How is goodwill taxed?

Goodwill is a chargeable asset. CG68010 adopts Lord Macnaghten’s description of it as “the attractive force which brings in custom” and explains that goodwill is construed by legal, not accounting, principles. Two practical points follow.

  • Base cost. Section 38 only allows a deduction for sums actually given to acquire or enhance an asset. A business built from scratch usually has no purchased goodwill, so the whole of the goodwill element of the price is often gain.
  • Personal goodwill. CG68010 notes that goodwill attributable to the owner’s personal skills, such as a chef or a hairdresser, does not pass to a new owner. HMRC may question a large goodwill figure where the business depends on the seller.

Selling part of a business as a going concern is a part disposal of a single goodwill asset, and CG68050 applies the A/(A+B) formula in section 42 to the cost.

What happens to stock and to plant and machinery?

Trading stock is not a capital asset. When a trade permanently ceases, section 173 ITTOIA 2005 requires the stock to be valued in the final trading accounts. If it is sold to an unconnected UK trader who can deduct the cost, section 176 takes the price actually realised. If the buyer is connected, section 177 uses an arm’s length value unless both parties elect under section 178. In other cases section 175 uses open market value.

Plant and machinery on which capital allowances were claimed is dealt with in the capital allowances computation. Section 61 of the Capital Allowances Act 2001 requires a disposal value, normally the net sale proceeds, to be brought into account when the asset is sold or the activity ends, capped by section 62 at the original qualifying expenditure. A disposal value above the remaining pool produces a balancing charge taxed as profit. Section 45 TCGA 1992 exempts most wasting chattels from capital gains tax, but section 45(2) removes that exemption where capital allowances were or could have been claimed. The closing year itself is covered in ceasing self employment.

Does Business Asset Disposal Relief apply?

Section 169I sets out three routes for unincorporated businesses:

  • a disposal of the whole or part of a business owned throughout the two years ending with the disposal;
  • a disposal of assets that were in use in the business when it ceased, where the business was owned for two years up to cessation and the disposal is within three years after cessation;
  • an associated disposal of an asset owned personally and used by a partnership, alongside a qualifying withdrawal of at least 5% from the partnership.

CG64015 stresses that selling business assets is not necessarily selling part of a business. CG64030 draws on the retirement relief cases: the activities disposed of must be capable of being carried on as a business without anything further being added. Selling a van or one machine while trading carries on normally does not qualify.

Relief applies only to relevant business assets. CG64010 confirms that shares and assets held as investments are excluded. GOV.UK gives the rate as 18% for disposals from 6 April 2026 and 14% for disposals between 6 April 2025 and 5 April 2026. Section 169N limits relief to £1 million of gains over a lifetime. The claim is made through the tax return or helpsheet HS275; for a disposal in 2025 to 2026, GOV.UK gives the deadline as 31 January 2028. Full conditions are on Business Asset Disposal Relief.

How are partners taxed when the partnership business is sold?

Under Statement of Practice D12, summarised at CG27350, each partner is treated as owning a fractional share of each partnership asset and disposing of that share when the partnership sells. CG68100 explains that each partner’s fraction is normally set by the partnership agreement or, failing that, by section 24(1) of the Partnership Act 1890. Each partner then calculates and claims reliefs individually.

Section 169I(8), explained at CG64040, treats a partner’s disposal of the whole or part of their interest in the partnership as a disposal of the whole or part of the business, and a sale by the partnership of its business as a disposal by each partner. However, disposing of an interest in particular partnership assets, rather than in the partnership itself, does not qualify. Changes in sharing ratios on admission or retirement are covered in partners joining and leaving.

How does this work for a typical sale?

Illustration only. Priya has run a dental laboratory as a sole trader since 2015. She sells it to an unconnected buyer for £500,000, split in the contract as goodwill £380,000, equipment £40,000 and stock £80,000. She built the goodwill herself, and the equipment originally cost £90,000.

Element Treatment Result
Goodwill £380,000 Capital gain with nil cost; Business Asset Disposal Relief at 18% Tax of £68,400 before the annual exempt amount
Equipment £40,000 Disposal value in the capital allowances pool, below original cost Balancing charge or allowance in the final period
Stock £80,000 Price realised under section 176 is a trading receipt Taxed as trading profit

What mistakes come up?

  • Selling assets piecemeal while trading continues and assuming relief applies.
  • Missing the three year window after cessation for assets sold off later.
  • Leaving the price unallocated, then facing a dispute with HMRC.
  • Treating the whole price as goodwill and ignoring stock and plant.
  • Forgetting that deferred or profit linked consideration has its own rules; see earn outs and deferred consideration. If the buyer is your own new company, incorporation relief may apply instead.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.