Business exit planning for UK entrepreneurs

When business owners begin thinking about a future exit, the question of where they ultimately want to live can often arise long before any discussion about valuations or deal structures. This decision is fuelled by personal values, aspirations and, for some, strong feelings about how much tax they should reasonably be expected to pay.

Attitudes can vary widely. Some people are uncomfortable with the idea that an entrepreneur might relocate to reduce their tax exposure, viewing tax as a contribution to the society that supported their business in the first place. Others feel they have spent years building value, taking risks and creating jobs, and find it difficult to accept how much of the eventual gain could be claimed by HMRC. These perspectives can co-exist, and for many individuals the reality sits somewhere in between.

What is clear is that leaving the UK with the expectation of materially cutting a future tax bill is far from straightforward. Residency rules are complex, the UK’s reach is often longer than people anticipate, and assumptions about automatic tax savings are frequently misplaced. Relocating for tax purposes alone can introduce legal, personal and timing considerations that must be handled with care.

As discussions around future exits increasingly begin with “Where do I ultimately want to live?”, understanding how tax residence influences the shape and efficiency of a sale has never been more important. Early planning and knowledge of Capital Gains Tax, the Statutory Residence Test, Temporary Non-Residence rules and the sequencing of the transaction can affect outcomes.

For owners weighing up a possible move, this article will explore what needs to be considered from both a practical and technical standpoint. For those who ultimately conclude that remaining in the UK is the right path, we will also look at how to structure affairs as efficiently as possible within the existing tax framework.

Why tax residency sits at the centre of business exit planning

The UK statutory residence test looks beyond simple day counting. It considers ties, lifestyle, work patterns, and ongoing connections to the UK. This is particularly relevant where a business sale follows shortly after relocation.

From experience, early business exit planning is essential. A well-timed and well-evidenced change in tax residency allows business owners to step away from reactive decisions and approach an exit from a position of strength. Relocation, supported by lifestyle change, not only stands up to scrutiny but also provides clarity and peace of mind.

Temporary Non-Residence and split year

Relocation planning must account for the UK’s Temporary Non-Residence (TNR) rules. These provisions are often misunderstood but are central to a successful exit strategy.

In simple terms, if an individual becomes non-UK resident but returns to the UK within a defined period, certain gains realised during their period of non-residence can be taxed as if they had never left. In many cases, this means an individual may need to remain non-UK resident for more than a single tax year, potentially five full tax years, to avoid the TNR rules applying to a business sale.[1]

Under the Statutory Residence Test, an individual is normally treated as either UK resident or non‑resident for an entire tax year.[2] However, in the year someone leaves the UK, the legislation allows the year to be divided into two parts if certain conditions are met. This is known as split‑year treatment. It is designed to ensure that income arising after a genuine move abroad is not taxed as if the individual were still fully UK‑resident.

This is where a common misunderstanding can arise. Business owners sometimes assume that if a disposal takes place during the overseas portion of a split year, the gain automatically falls outside the UK tax net. In reality, split‑year treatment does not determine whether a specific capital gain is taxable. It simply adjusts the period for which you are treated as UK resident for income tax purposes. Capital Gains Tax exposure depends on a separate set of rules that look at residency for the entire tax year, the nature of the asset and, crucially, the Temporary Non‑Residence provisions.

As a result, a disposal occurring in the year of exit can still fall within the UK tax net depending on timing and circumstances. Split-year treatment is not, in itself, a solution to CGT exposure.

These rules underline the importance of early, structured planning. Relocation shortly before a transaction, without sufficient time or substance, can produce unintended tax consequences.

The myth: Leaving the UK to avoid Capital Gains Tax

A common misconception among business owners is that spending a single tax year, or even a couple, outside the UK is enough to avoid Capital Gains Tax (CGT) on a business sale. CGT applies to the profit made on disposal when an asset increases in value, with rates at 18% for basic rate taxpayers and 24% for higher rate taxpayers, alongside a £3,000 annual allowance (which can be combined with a spouse or civil partner to total £6,000 in a single tax year if they are joint owners or assets are gifted to a spouse prior to encashment).[3]

As discussed, the Temporary Non‑Residence rules significantly restrict when a sale completed while abroad will fall outside the UK CGT regime. These rules mean that short periods of non‑residence seldom achieve the tax outcome people expect, even if the disposal takes place overseas.

The key difference lies between selling as a UK resident and selling after a fully established change in tax residency. Only a long term relocation has the potential to reduce CGT exposure in a meaningful way. Seeking advice from a specialist cross-border tax adviser is vital.

Capital Gains Tax and the UK business exit landscape

For most business owners, a completely tax free disposal is not achievable. The more realistic approach is to plan effectively for the likely CGT liability and ensure that available reliefs are used in the most efficient way.

Business Asset Disposal Relief (BADR), known previously as Entrepreneurs’ Relief, can be a valuable relief for qualifying shareholders. BADR is a preferential CGT regime designed to recognise the risk and long term commitment involved in building a business. When the conditions are met, gains are taxed at 18% (up from 14%) from 6 April 2026, up to a lifetime limit of £1 million (down from £10 million). Any gains above this threshold are taxed at the standard CGT rates. To qualify, individuals must generally have held at least 5% of the ordinary share capital and voting rights, been an employee or office holder of the company, and ensured the company was a trading company or the parent of a trading group throughout a minimum two year period before the sale.[4]

Although the lifetime limit is now significantly lower than in previous years, BADR can still offer savings where it applies. Ensuring the qualifying conditions have been met well in advance of a sale is therefore an important planning step. Ultimately, early planning provides options. Late planning restricts them.

It is also important to place current CGT rates in context. Prior to 2008, the higher rate of CGT had never fallen below 30%, and prior to 2006, the basic rate hadn’t fallen below 20%. Even following recent increases, UK rates remain relatively low by historical standards. This means that for many owners, focusing on structuring the business sale effectively within the UK system can often produce better results than attempting to remove tax entirely by moving abroad.

The risks of deferring CGT with Enterprise Investment Schemes

It can be common for sellers to explore the Enterprise Investment Scheme (EIS) as a way to defer Capital Gains Tax. Under the rules, an individual can reinvest proceeds from a business sale into qualifying EIS shares and defer the CGT that would otherwise be due.[5] This can only be completed within the first three years after the business sale. Many assume this offers an immediate tax advantage, although this is not usually the case.

CGT deferral does not remove the tax liability. It simply delays it. When the EIS investment is eventually sold, or if certain disqualifying events occur, the original deferred gain crystallises and is taxed at the prevailing CGT rate at that time. A deferred gain may come back into charge at a later date, and the tax treatment applying at that time may differ from the position when the investment was made. You could be deferring CGT only for rates to increase in the future, especially when considering the historical volatility in UK capital taxation. And, as previously discussed, CGT rates are historically fairly low compared to the early 2000s.

The suitability of EIS reinvestment is also highly dependent on an individual’s risk profile. EIS shares are inherently high risk and tend to be concentrated in smaller, early‑stage companies with limited trading history.[6] These businesses can have a materially higher failure rate than established companies. While not all early‑stage or growth companies qualify for EIS, a substantial portion of EIS‑eligible businesses sit firmly within this high risk category. This means EIS investments can involve a higher risk of loss than more established or diversified investments. For many business owners who have just created significant liquidity or are planning for retirement, committing capital to a high‑volatility asset class can be inappropriate. The investment may also be illiquid for several years, which can constrain wider financial planning.

For these reasons, using EIS purely to defer CGT as part of your business exit strategy often proves counterproductive. While the relief can be valuable in the right circumstances, it should be considered as part of a broader investment strategy rather than a tax‑driven reflex.

Don’t invest unless you’re prepared to lose all the money you invest. These are high‑risk investments and you are unlikely to be protected if something goes wrong.

Considering an Employee Ownership Trust

For some business owners, selling to an Employee Ownership Trust (EOT) offers an alternative route to a traditional third‑party sale. Historically, this option was highly attractive from a tax perspective because qualifying disposals to an EOT were entirely exempt from CGT. This changed following the 2025 Autumn Budget, which revised the rules so that only the first 50% of the gain now attracts a 0% CGT rate.[7] The remaining portion is taxed at the appropriate CGT rate, which means the overall saving, while still meaningful, is not as generous as it once was. Importantly, you can’t combine an EOT with Business Asset Disposal Relief.[8]

EOTs tend to be most suitable for owners who want to secure the long term future of the business and preserve its culture while giving employees a significant stake in the company. To qualify, the trust must acquire a controlling interest, and the company must be run for the benefit of all employees on an equitable basis. In many EOT sales, sellers are paid partly upfront and partly over time, with the deferred amounts usually coming from the company’s future profits, so those payments depend on the business staying financially healthy.[9]

A further point that can be overlooked is valuation. EOT transactions commonly take place at a fair value assessment rather than the premium that might be achievable in a competitive sale process. As a result, even with partial CGT relief, owners may ultimately receive less net value than they could have secured from a third‑party buyer, both before and after tax. This can make the economic outcome less favourable overall.

Although an EOT can still be a tax‑efficient option, it is not appropriate for every owner. The reduced tax advantage and potential valuation mean the decision should be driven more by succession planning and business continuity rather than tax relief alone.

Ongoing UK tax exposure after relocation

CGT on the sale itself is only part of the picture. Relocated founders may continue to have UK tax exposure long after departure.

Future income from UK sources such as rental income, UK pensions, or retained shareholdings can remain subject to UK taxation. Retaining UK property or other UK-situs assets can also create ongoing compliance and tax considerations.

Inheritance Tax (IHT) is particularly significant. Under current rules, individuals who have been a UK resident for 10 out of the previous 20 tax years can remain within the scope of UK IHT for up to 10 years after. This is often referred to as the “IHT tail”.[10]

For a business owner who relocates and then sells their business, sale proceeds may therefore remain exposed to UK IHT for years after leaving the UK. Planning for this exposure – potentially through structuring, lifetime gifting, or appropriate life cover – is an essential part of holistic exit advice. Importantly, relocation reduces certain tax exposures, but it does not automatically eliminate all UK tax obligations.

Planning options worth considering if you decide to stay in the UK

At Saltus, we often find that once business owners fully understand the complexity of relocating, they decide that remaining in the UK is the more practical and predictable option. When that is the case, the focus shifts to how best to structure their wealth after the sale. Once proceeds are realised in the UK, there are several planning strategies that can help manage future tax exposure and protect family wealth.

Family Investment Companies

For owners who decide to remain in the UK after a sale, a Family Investment Company (FIC) can be a useful way to structure and pass on wealth while retaining control. A FIC is simply a private company used to hold investments. It is typically most suitable for families with more than £2 million in assets where the potential planning benefits outweigh the costs.

A central advantage is the ability to separate control from economic benefit through different share classes. For example, parents can hold voting shares, while growth shares could be gifted to children. When the FIC is funded using a director’s loan, the initial value of the company is effectively nil, allowing these gifts to be made without triggering IHT. Future investment growth then falls outside the estate, while the loan can be repaid over time to provide tax‑efficient access to capital.

FICs can also offer tax efficiency at the company level, with profits subject to corporation tax rather than higher income tax rates. They can hold a broad range of investments, offset certain expenses and provide long term governance for family wealth. However, they require ongoing legal, tax and accountancy support, and are best used as part of a broader plan rather than a standalone solution. Seeking legal and specialist tax advice is recommended.

Business Property Relief

Business Property Relief (BPR) remains an important consideration for business owners planning for inheritance tax after an exit. From 6 April 2026, up to £2.5 million of qualifying business assets per person, or up to £5 million for a married couple or civil partners if allowances are combined, can continue to benefit from 100% BPR. Any value above these limits receives 50% relief, creating an effective IHT rate of 20% on the excess if the main IHT rate stays at 40%.[11] The relief exists to prevent the forced sale of trading businesses to fund IHT, and it allows qualifying business assets to pass to the next generation with a significantly reduced tax burden.

While many trading businesses currently qualify for 100% Business Property Relief, once the business is sold and the value sits in cash or a standard investment portfolio, that money usually no longer qualifies for BPR and is fully within the scope of IHT, other than the standard nil‑rate bands and spouse exemption.

One solution is to reinvest part of the proceeds into a BPR‑qualifying portfolio within three years of the disposal. This preserves eligibility for Business Property Relief without the usual two year holding period. While these assets remain within the taxable estate and are considered when assessing eligibility for the Residence Nil Rate Band, they can qualify for BPR, reducing the inheritance tax exposure.

However, it is important to recognise that BPR‑qualifying investments carry risks. They typically involve smaller, less liquid trading companies and can experience higher volatility or capital loss. As a result, BPR retention should be balanced carefully against wider objectives and liquidity needs.

Using ISAs, GIAs, gifting and offshore bonds

Although more familiar tax wrappers do not provide the same perceived tax differentials sometimes associated with overseas relocation, they still play a meaningful role in building long term tax efficiency.

• Offshore bonds offer tax‑deferred growth, giving investors control over when a tax charge arises. They can support flexible withdrawal strategies, particularly for individuals who expect to manage their taxable income carefully in retirement.
• Structured gifting, either directly or through trusts or a Family Investment Company, can reduce the future inheritance tax burden and help pass wealth to the next generation in a managed and controlled way.
• ISAs and general investment accounts remain core elements of a UK‑based plan. While straightforward, they provide tax‑efficient growth and income and can support diversification alongside more specialised structures.

Integrated advice for complex decisions

At Sopher and Co, experience shows that relocation, tax residency, and CGT cannot be considered in isolation. For many business owners, this is a highly personal area, shaped by long held views about lifestyle, family priorities and what feels right after years of building a business. Whatever the motivation, the most effective business exit strategies combine different strands of advice. Coordinating accountancy, financial planning, legal structuring and succession planning ensures the business sale is not treated as a single event but as part of a multi‑year process. Decisions made shortly after the sale can influence the tax and financial position for decades, so bringing these perspectives together early helps create clarity and avoids missed opportunities.

From a wealth management perspective, a business sale represents a transition rather than an endpoint. Investment strategy, cashflow planning, intergenerational considerations, and ongoing tax residency all need to be aligned before a transaction completes. The discipline lies in simplicity – creating clear, defensible structures that remain effective over time.

Business owners who address tax residency and relocation early retain control and optionality. They are less exposed to rushed decisions driven by deal timetables or tax changes. In our experience, confidence comes not from complexity or aggressive structuring, but from preparation, clarity, and sound judgement. Working with a trusted adviser ensures decisions are made with both compliance and opportunity in mind.

Looking ahead

Where life is based and, critically, where an individual is a tax resident, has become just as important as how a business exit is structured. Business owners often have strongly held views on this topic. Some feel a genuine pull towards a different lifestyle overseas and believe a change in tax environment is a fair reward for the risks they have taken. Others feel an equally strong commitment to remaining in the UK and contributing tax on the value they have created. Both perspectives are valid, and both require careful, early planning. A clear understanding of the Temporary Non-Residence and split-year rules, clarity about long term tax residency intentions, and proactive consideration of ongoing UK tax exposure, including the IHT tail, are all essential components of a resilient exit strategy.

An exit planned with tax residency, CGT, relocation, and long term wealth structuring in mind is not just more efficient; it is more robust, commercially coherent, and better aligned with what comes next. Saltus supports clients who choose to remain in the UK after a sale with the financial planning that underpins long term security and clarity. Where individuals are considering a move overseas, specialist international tax advice is essential. Sopher and Co can provide the cross‑border tax expertise required.

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About the authors…

Sue Doran is a Director at Sopher + Co, advising owner-managed businesses and entrepreneurs on growth, succession, and exit planning. With over 30 years’ experience, she specialises in helping business owners navigate complex decisions around tax residency, relocation, and global mobility combining practical, commercially grounded advice with a focus on clarity, authenticity, and long term personal and financial outcomes.

Jordan Gillies, Partner at Saltus. He is a recognised voice in the financial industry, known for helping people ‘rethink’ retirement and assisting business owners preparing for sale. A familiar face on social media and in the national press, Jordan has built a significant following through his accessible financial content. His work has earned him shortlistings for the Magic Circle’s Outstanding Individual of the Year award and City Wealth’s Future Leader Initiative of the Year. At Saltus, he is often the first point of contact for prospective clients, helping connect them with the right advice. Jordan has over a decade of experience in financial services.

The Financial Conduct Authority does not regulate tax planning. The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.