EXIT PLANNING
Selling or winding up an IT business
Whether an IT business ends in a trade sale or a members' voluntary liquidation, the tax outcome is largely decided by decisions made years before the exit itself — not in the final few months.
Business Asset Disposal Relief
Business Asset Disposal Relief (BADR, formerly Entrepreneurs' Relief) reduces the Capital Gains Tax rate on qualifying business disposals, up to a lifetime limit. Qualifying generally means the business has been trading, and the owner has held their shares and role, for a minimum continuous period before the sale. Falling short of that qualifying period by even a few weeks can be the difference between BADR applying and it not — which is why exit planning has to start well before a buyer is on the table.
Members' voluntary liquidation, for businesses that are winding down rather than selling
Not every IT business ends in a sale. For a director closing a solvent company — retiring from contracting, for instance — a Members' Voluntary Liquidation (MVL) extracts the retained profit as a capital distribution rather than as a dividend, which is usually taxed more favourably, particularly where BADR applies on top. An MVL needs a licensed insolvency practitioner and has fixed costs, so it tends to make sense above a certain retained-profit threshold rather than for very small balances.
What actually determines the outcome
Three things tend to matter more than anything decided in the sale negotiation itself:
- How long you've held your shares and role. The qualifying period for reliefs is fixed and doesn't bend for a good offer that arrives early.
- What's sitting in the company. Large cash reserves or non-trading assets can affect whether a company still qualifies as a trading company for relief purposes.
- Whether the personal and business side were planned together. A tax-efficient sale that leaves the proceeds sitting inefficiently in a personal account isn't a complete plan.
Why this belongs on a retirement planning site, not just an M&A one
For most IT business owners, the sale or wind-down of the company is the retirement plan — it's usually the single largest financial event of their working life. Treating it as a standalone transaction, separate from pensions, ISAs and the rest of the household's plan, tends to leave value on the table on both sides of the exit.