A Practical Guide for UK Shareholders

Selling your business shares in a private limited company is a big deal — legally, financially and personally. Whether you’re a majority shareholder, minority shareholder or one of several other shareholders, there’s a process to follow and pitfalls to avoid.

This guide takes you through the key stages of a share sale from reviewing your shareholders agreement to understanding Capital Gains Tax, dealing with stock transfer forms and working out your purchase price.

Step-by-Step Checklist: Selling Your Shares

Here’s a simple breakdown of what to do when you’re selling shares:

• Review your shareholders agreement and the company’s articles
• Check for any relevant provisions that limit who you can sell to
• Confirm what type of shares you’re selling (e.g. check the nominal value)
• Get a professional valuation of your share capital
• Agree the purchase price, payment terms and conditions
• Draft a share sale agreement with legal input
• Complete a stock transfer form and cancel your existing share certificate
• Issue a new certificate to the buyer
• Pay any stamp duty and update the company’s share register
• Report any gain to HMRC and pay tax where due

Key Documents

Shareholders Agreement and Articles

These documents may contain relevant provisions that affect your ability to sell. You may need approval from the directors or existing shareholders may have the right to buy your shares first.

Don’t ignore this step or you’ll delay or invalidate your sale.

Valuation and Payment Structures

Before you agree to a deal, get the value of your shareholding assessed. This may involve looking at the company’s assets, income and growth potential.

Payment options are:

• A single lump sum
• Structured instalments
• Earn-outs based on future performance

Each structure affects tax, ownership transfer and timing. Consider getting advice from a solicitor or usually an accountant.

The Share Sale Agreement

This document outlines the purchase price, any restrictive covenants, warranties and how payment will be made. A good agreement protects both the buyer and seller in case of disputes.

Completing the Transfer

You’ll need to complete a stock transfer form and issue an updated share certificate. The company must record the new ownership in its statutory register. If the consideration is over £1,000 the buyer must pay stamp duty at 0.5%.

Capital Gains Tax and Reliefs

You’ll pay Capital Gains Tax (CGT) on the profit (gain) you make when you sell.

CGT Rates

• 10% if you’re a basic rate taxpayer
• 20% if you’re a higher or additional rate taxpayer

You can deduct certain costs like legal fees to reduce your gain.

Business Asset Disposal Relief (BADR)

You may qualify for 10% CGT if:

• You own at least 5% of the share capital and voting rights
• You’re an employee or director
• You’ve held the shares for at least two years
• The company is your personal company

The lifetime limit is £1 million in qualifying gains.

Practical Example

Example:
You’re a minority shareholder with 10% in a private company. You agree a purchase price of £100,000 — with £70,000 upfront and £30,000 in a one-year earn-out. You held the shares for over two years while acting as a director, so you may qualify for BADR and pay only 10% CGT on the gain.

Small Section on Buying Shares

Though this guide is about selling, the buyer has responsibilities too:

• Do due diligence
• Review the shareholders agreement and company’s articles
• Prepare and sign the share sale agreement
• Arrange payment and pay stamp duty

Knowing what the buyer needs helps you anticipate delays or requests.

Special Circumstances

Selling to Family Members or a Civil Partner

Even if you receive no cash, HMRC treats this as a sale at market value for tax purposes. You may still owe CGT unless exemptions apply.

Share Buyback

In some cases the company itself may buy back your shares. This must follow specific rules under company law and may result in capital or income treatment for tax purposes.

Employee Share Schemes

If your shares came from an employee share scheme, check if there are restrictions on selling shares and what tax implications apply.

Common Pitfalls to Avoid

• Ignoring the shareholders agreement
• Selling without checking stamp duty obligations
• Overlooking BADR or incorrectly claiming relief
• Using vague or verbal agreements
• Forgetting to update the share register or issue a share certificate

Glossary of Terms

• Share Capital – Total value of shares issued by a company
• Nominal Value – Face value of a share (not the market value)
• Shareholders Agreement – Contract between shareholders outlining rights and rules
• Stock Transfer Form – Legal form for transferring shares
• Consideration – The price or value given for the shares
• Earn-Out – A conditional portion of the purchase price, based on future performance

FAQs: Tax and Selling Shares

Do I need to report the sale to HMRC?

Yes, if you’ve made a gain, or received more than four times the annual CGT allowance in sales.

How is CGT calculated?

The difference between the purchase price and what you paid (plus allowable costs like legal fees).

Do I still pay CGT if I sell to a family member?

Yes — unless specific reliefs apply, HMRC treats it as a normal sale at market value.

Do employee shares count towards BADR?

Yes, if you meet the criteria — including holding at least 5% of the share capital and being a director or employee.

Final Tip

Selling your shares may only happen once — so it’s worth doing properly. Get advice from a solicitor or accountant early on to ensure you’re protecting your interests, managing your tax and keeping the process as smooth as possible.