How to Sell a Law Firm or Solicitors' Business

Selling a law firm is not like selling a normal trading company. The value sits in relationships, fee-earner continuity and a book of matters, and almost every practical step is shaped by regulation the rest of the market never touches: Solicitors Regulation Authority approval of who ends up owning and running the firm, six years of professional indemnity run-off cover, the treatment of work in progress and unbilled disbursements, and the strict rules around the client account. Get those right and a firm is a saleable, attractive asset. Get them wrong and a deal that looked agreed can unravel days before completion.

This guide covers what a solicitors' business is actually worth, who buys law firms, the diligence traps that are specific to legal practices, and the tax you pay at 2026/27 rates, including one change that rewrites the maths on employee ownership. It is general guidance, not advice on your firm. For the numbers on your own exit, speak to an accountant before you sign anything.

What a Law Firm Is Worth

There is no single formula, but law firms cluster around two valuation approaches depending on size.

Smaller firms and sole practices are usually valued on a blend of annual turnover or recurring fee income plus goodwill, with work in progress (WIP) and unbilled disbursements valued separately. The headline goodwill figure is often expressed against fees, but the real number is heavily discounted for how dependent the firm is on the departing owner and how quickly the work would follow them out of the door.

Larger firms are valued on a multiple of adjusted EBITDA, normalised for a proper market rate of partner remuneration (a partner drawing profit share is not the same as an employed fee-earner, and the accounts have to be adjusted to show what the business earns once the owners are paid a salary). Multiples are modest compared with, say, software, and they hinge on one thing above all: how recurring the income is.

• Recurring, sticky income (private client with a will-bank, ongoing commercial retainers, trust and probate administration, compliance work) supports a higher multiple. The buyer can see the fees repeating.
• One-off, matter-based income (residential conveyancing, one-off litigation, single transactions) supports a lower multiple. When the matter closes, the fee stops, and the buyer has to win the next instruction.

Two firms with identical turnover can be worth very different amounts if one is a repeatable private-client practice and the other is a transactional conveyancing shop. Before you model any exit, get an indicative valuation and understand which side of that line your firm sits on. Our business valuation guide explains the methods, and the business valuation calculator gives you an EBITDA-based range to start from.

Who Buys Law Firms

The buyer market for solicitors' firms is more active than many owners expect, and who buys you shapes the whole deal.

• Consolidators and roll-ups building larger regional or national practices. They want recurring fees, a clean back office and a smooth SRA transfer. They are systematic buyers and often the most reliable route for a retiring principal.
• ABS-backed and private-equity-supported acquirers. Alternative business structures let external capital own law firms, and PE-backed platforms have been steady acquirers of profitable practices, particularly in volume areas and private client.
• Merger partners. Another firm may want your team, your practice area, your location or your client base more than a financial buyer does, and a merger can be structured as a sale of the incorporated practice or an admission into an existing partnership or LLP.
• Local firms absorbing a retiring sole practitioner. Often the cleanest exit for a small practice: a slightly larger neighbour takes on the files, the staff and the run-off, sometimes for modest goodwill but with the run-off liability lifted.

The difference matters because a consolidator diligences your recurring fees and lock-up, while a merger partner diligences your people and your claims record. Knowing your likely buyer tells you what to fix first. For the routes to market and how a sale process runs end to end, see our guide to selling your business.

The Diligence Traps Unique to Law Firms

This is where legal-practice deals live or die. Four issues appear on almost every law firm sale and appear on almost no other kind.

SRA change-of-control approval

A sale changes who owns and manages an authorised body, and the SRA has to approve that change. New owners and managers must be approved as suitable, and any change of legal entity has to be authorised, before the practice can keep operating lawfully. This is not a formality bolted on at the end: it sits on the critical path, it can take weeks, and completion is normally made conditional on it. Trying to complete without it risks the firm losing its authorisation, which destroys the very thing the buyer is paying for. The Solicitors Regulation Authority sets the requirements, and both sides build the timetable around them.

Professional indemnity run-off cover

Every firm carries professional indemnity insurance (PII). When a firm closes, it needs run-off cover: continuing PII that protects against claims arising after it has stopped trading. The SRA minimum is six years of run-off, and it is expensive. Run-off is typically quoted as a one-off premium calculated as a multiple of the firm's last annual PII premium, frequently in the region of two to three times it. On a firm paying, say, £40,000 a year in PII, six-year run-off can cost well into six figures.

Who bears that cost is one of the most negotiated points in a law firm sale. If the buyer takes on the whole practice and continues it, run-off may be avoided because the firm carries on. If the old entity closes (common on a business-and-assets sale), someone pays for run-off, and it is almost always knocked off the purchase price. Treat run-off as a real, quantifiable deduction from your headline valuation, not an afterthought.

Work in progress, disbursements and lock-up

WIP (time recorded but not yet billed) and unbilled disbursements (search fees, counsel's fees, costs paid on clients' behalf) are genuine value, but buyers discount them because not all WIP converts to cash. A firm with a large, ageing lock-up (WIP plus unpaid bills sitting on the ledger for months) is worth less than an identical firm that bills promptly and collects fast. WIP and disbursements are usually valued separately from goodwill and often land in a completion-accounts adjustment or a deferred slice rather than being paid in full upfront. The single most effective thing most sellers can do to lift their price is to clean up billing and cut lock-up in the year before they go to market.

The client account and client-transfer consent

Client money is not the firm's money. It must be handled strictly under the SRA Accounts Rules throughout the sale, and reconciling the client account is a diligence flashpoint. File and matter transfer also has to respect confidentiality and clients' interests. On a share sale the entity keeps the same clients, so this is less of an issue; on a business-and-assets transfer, clients may need to be notified and given the chance to object or move, which is slower and riskier. This is one more reason the choice of structure is not just a tax question.

Tax When You Sell: CGT and BADR at 2026/27 Rates

If your firm is incorporated and you sell your shares, you pay Capital Gains Tax on the gain. Business Asset Disposal Relief (BADR) can reduce the rate to 18% from 6 April 2026 (up from 14% in 2025/26) on up to £1 million of lifetime gains, with gains above that limit taxed at 24% for higher-rate sellers, after the £3,000 annual exempt amount. To qualify for BADR you generally need to have held at least 5% of the shares and voting rights in a trading company for at least two years and be an officer or employee. The current rules and rates are set out in the government's Business Asset Disposal Relief guidance and the Capital Gains Tax rates pages.

If you trade as an LLP or a traditional partnership, the position is different: your share of the business may be dealt with as a capital disposal, but elements can be treated as income, and the mechanics of admitting a buyer or transferring the business need care. Many firms incorporate before a sale precisely to get the cleaner CGT treatment on shares, but incorporation has its own tax consequences and timing rules, so it is a decision to model, not to assume.

We are not going to re-explain the full BADR mechanics here, because we already have a dedicated pillar for that. For the qualifying conditions, the rate history and the share-versus-asset detail, read our selling your business CGT and BADR guide and the Business Asset Disposal Relief explained page, and the BADR 2026 rate change post. The point for a law firm seller is narrower: model the CGT against your run-off deduction and your WIP treatment together, because all three land on the same net-proceeds line. For a route-by-route comparison of the tax, see our page on the tax on selling a business.

Could an Employee Ownership Trust Work for a Law Firm?

An employee ownership trust (EOT) is a way of selling a controlling interest to a trust that holds the firm on behalf of its staff, funded out of future profits rather than an external buyer's cash. Law firms have used EOTs, and for the right practice the attractions are real: a phased exit, no external acquirer diligencing your files, cultural continuity, and less change-of-control friction than selling to a consolidator.

The tax case, however, has changed fundamentally, and this is where a lot of published advice is now simply wrong.

At the Autumn Budget on 26 November 2025, the CGT relief on a disposal to an EOT was cut from 100% to 50%, with immediate effect. For any sale on or after that date, 50% of the gain is the seller's chargeable gain at the point of sale. The other 50% is not taxed at sale but is effectively held over and bites on the trustees' future disposal of the shares. Critically, BADR and Investors' Relief cannot be claimed on the taxable half, so it is taxed at the ordinary CGT rate for shares (24% for higher and additional-rate sellers, or 18% within any unused basic-rate band), after the £3,000 annual exempt amount. The EOT relief lives in sections 236H to 236U of TCGA 1992 (inserted by Finance Act 2014), the mechanics are in HMRC's Capital Gains Manual from CG67800, and the 100%-to-50% cut was the Autumn Budget 2025 measure covered in the House of Commons Library briefing on employee ownership trusts.

Any guide that still tells you a sale to an EOT is entirely CGT-free was written before 26 November 2025 and is now out of date. Here is the same worked example we use across our exit content, so the numbers are consistent.

Item	Figure
Sale value (market value to EOT)	£4,000,000
Original base cost	£200,000
Total gain	£3,800,000
Old rule (before 26 Nov 2025): 100% relieved	£0 CGT at sale
New rule (on/after 26 Nov 2025): chargeable now = 50% × £3,800,000	£1,900,000
Less annual exempt amount	£3,000
Taxable now	£1,897,000
CGT rate (BADR / IR not available on this slice)	24%
CGT payable now	£455,280
Remaining 50% (£1,900,000)	latent gain that bites the trustees on a future disposal

Before 26 November 2025 this exit was tax-free. The same sale today triggers roughly £455,000 of CGT and leaves a further £1.9m of latent gain sitting inside the trust. That does not kill the EOT as an option, but it means an EOT should now be modelled against a straight trade sale rather than chosen because it is "the tax-free one". Our employee ownership trust guide covers the structure, the qualifying conditions and the timeline in full.

Getting a Law Firm Ready to Sell

Buyers pay more for a firm that is easy to diligence and easy to run without you. In the twelve to twenty-four months before you go to market, the levers that move the price most for a legal practice are:

• Cut the lock-up. Bill promptly, collect faster, and clear ageing WIP and disbursements. Lock-up is one of the first things a buyer models, and reducing it turns discounted WIP into hard value.
• Reduce owner dependence. If the key relationships and the fee-earning all run through one principal, the goodwill walks out with them. Spread client contact across the team and document processes.
• Tidy the compliance and claims record. A clean PII history, no open regulatory issues and a well-run client account all support both authorisation and price. A poor claims record raises run-off cost and buyer caution.
• Shift the mix toward recurring work where you can, because it directly lifts the multiple.
• Get the structure and the tax modelled early. Whether to incorporate an LLP before sale, and how BADR and the EOT rules apply, are decisions that need lead time.

Our guide to preparing a business for sale sets out the wider due-diligence data room and the value-killers to fix before you list. Start it well before you want to exit; on a law firm, the run-off, the WIP and the SRA approval all reward preparation and punish a rush.

A Note on Regulation and Advice

This page is general guidance on the exit and succession side, which is unregulated advisory work: arranging the sale of a company by way of its shares falls within the sale-of-a-body-corporate exclusion in the Financial Services and Markets legislation. We help owners plan and structure an exit and model the tax. We do not arrange, source or introduce the finance that funds a buyout, which is a separate, regulated activity handled by an authorised commercial finance broker. And nothing here is personal tax advice: the figures are worked examples, and your own position needs modelling on your own numbers.

Next Steps

Selling a solicitors' firm rewards owners who understand their own economics before a buyer does: what the firm is worth on the right multiple, how much the six-year run-off will cost, how much value is tied up in WIP, and what the CGT bill looks like at 2026/27 rates once BADR and the new 50% EOT rule are factored in. Those numbers interact, and the difference between planning them and discovering them at completion is often six figures.

We work with owner-directors and partners planning an exit to map value, deductions and the whole exit journey, and we bring in accountant support to model the CGT and BADR before you sign heads of terms, which is core accountancy work and exactly where the tax on your exit is won or lost. To book an exit and CGT review for your firm, get in touch. If your firm sits within the wider solicitors sector, our sell my business guide shows how the same principles apply across the exit routes.