Selling a factory is a sequence, not an event. It runs from the year you spend tidying the accounts, through the letter that sets out heads of terms, into diligence, completion accounts and whatever is left hanging on an earn-out. Each stage in that sequence closes behind you, and each one has a tax consequence attached that you can still influence while it is open and not afterwards. The most expensive mistake owner directors make is treating tax as something the accountant works out at the end, when in fact most of it was settled in a two-page heads of terms document signed months earlier.
What follows walks that sequence in order, with the tax attached to each stage, and then runs one Blackburn factory sale both ways to a net figure. Rates are 2026/27 unless dated otherwise. This is general guidance for owner directors, not advice on your own numbers.
Stage One: The Grooming Year, and the Four Things Worth Fixing
The twelve to twenty-four months before you go to market are the only period in which you can change what a buyer finds. Four items carry disproportionate weight in a manufacturing deal, and none of them can be fixed quickly.
The fixed asset register. It needs to reconcile to your capital allowance pools, item by item, with acquisition dates and the relief claimed against each. A register that does not reconcile is the single most common reason a plant-heavy deal stalls at diligence, because the buyer cannot price the tax position on the assets they are buying. If yours has drifted, the reconciliation is a job for a quiet quarter, not for the middle of a process. Our page on plant and machinery capital allowances for manufacturers sets out how the pools work and what the FA 2026 changes did to them.
Stock and work in progress policy. Buyers do not object to a conservative valuation policy. They object to one that changed. Write down how you value raw materials, part-finished work and finished goods, including how production overhead is absorbed, and apply it consistently through at least two year ends before you sell. The detail is in our guide to manufacturing costing, work in progress and year-end stock, and it matters here because the same policy governs the completion accounts adjustment at stage five.
Monthly management accounts. Prepared monthly, reconciled to the statutory accounts, with the adjustments between the two documented. A buyer running a data room wants twenty-four months of them.
Customer spread. If a single customer is a quarter or more of revenue, a buyer sees the risk of losing the business after completion, and responds by deferring more of the price, extending the earn-out, or reducing what they pay. Spreading revenue takes years, which is exactly why it belongs in this stage rather than any later one. The full readiness list is in our preparing a business for sale guide.
Stage Two: Deciding Who You Are Selling To
Buyer type shapes structure, and structure shapes tax, so this decision belongs before heads of terms rather than after. Trade buyers, meaning competitors, customers or suppliers, want capacity, a customer base, a specific capability or a geographic foothold, and they are usually comfortable buying shares because they intend to run the business on. Private equity buys platforms to grow and consolidate, and will typically want a meaningful part of the price deferred or tied to performance if the business still depends on you personally, which pushes tax into stage six.
If the buyer is your own workforce
An Employee Ownership Trust, or EOT, lets you sell a controlling interest to a trust holding the company for its employees, funded out of future profits rather than a buyer's cash. It suits the skilled, long-serving workforces common in manufacturing, and it keeps the business independent. The tax case changed sharply on 26 November 2025: for disposals on or after that date the Capital Gains Tax relief on a qualifying disposal to an EOT was cut from 100% to 50%. Half the gain is chargeable at the point of sale at ordinary CGT rates, with Business Asset Disposal Relief and Investors' Relief both unavailable on that half, and the other half is held over to be taxed on the trustees when they later dispose of the shares. Material describing an EOT sale as entirely tax free predates that change. An EOT can still be the right answer on continuity and culture; it is no longer the automatic tax answer it once was.
Stage Three: Heads of Terms, Where the Fork Is Actually Decided
Heads of terms is usually two or three pages and usually not legally binding, and it is nonetheless the most tax-significant document in the whole process. It fixes three things: whether you are selling shares or the company is selling its trade and assets, how much of the price is paid at completion, and what hangs on an earn-out. Reopening any of the three afterwards means reopening a deal the buyer believes is settled.
The fork itself is a straightforward conflict of interest. You want a share sale: one disposal, one layer of tax, Business Asset Disposal Relief potentially available, the company's capital allowance pools untouched. The buyer often wants an asset sale: they pick the assets they want, they leave behind the history and the latent liabilities, and they get a fresh base cost for capital allowances on the plant. For a manufacturer with decades of production on a site, the buyer's preference for leaving history behind is not theoretical, and environmental exposure is often the reason behind it.
On an asset sale the company is taxed on what it sells. Gains on land and buildings are chargeable gains; goodwill created after March 2002 goes through the corporate intangibles regime as income rather than as a chargeable gain; plant leaving the pool above its written-down value produces a balancing charge taxed as trading profit. All of it is charged to corporation tax, at 19% where augmented profits do not exceed £50,000 and 25% where they exceed £250,000, with marginal relief in between, and those rates and limits apply for both the financial year 2025 and the financial year 2026. Then the net cash has to reach you, which is a second tax event.
Where fixtures within a building pass across on an asset sale, buyer and seller normally agree a section 198 election fixing the value attributed to them, which must be made within two years of the transfer. The election is a negotiation, because the figure that suits the seller reduces the buyer's future allowances and the other way round. We keep the depth of that on the capital allowances for manufacturers page; what matters at heads of terms is that the number is a term of the deal and not an accounting formality.
The Fork Worked Through: One Factory, Sold Two Ways
Rhian owns all the shares in a sheet metal fabrication company in Blackburn. She subscribed for the shares at incorporation for £100, has been a director throughout, and has not used any of her Business Asset Disposal Relief lifetime limit. She is a higher-rate taxpayer, so gains above the BADR limit fall in the 24% band. The business is worth £1,800,000, and both routes below are priced at that figure so the comparison is like for like. All figures are 2026/27 and the disposal is assumed to happen on or after 6 April 2026.
Route A: she sells the shares
| Line | Figure |
|---|---|
| Consideration for the shares | £1,800,000 |
| Less base cost of the shares | (£100) |
| Chargeable gain | £1,799,900 |
| Slice within the BADR lifetime limit | £1,000,000 |
| Capital Gains Tax on that slice at 18% (BADR, from 6 April 2026) | £180,000 |
| Remaining gain | £799,900 |
| Less annual exempt amount (2026/27) | (£3,000) |
| Taxable at the main rate | £796,900 |
| Capital Gains Tax on that slice at 24% | £191,256 |
| Total Capital Gains Tax | £371,256 |
| Net proceeds to Rhian | £1,428,744 |
Route B: the company sells the trade and assets, then is wound up
The buyer takes the business for the same £1,800,000, allocated across the assets as follows. Assume the plant originally cost more than the £600,000 attributed to it, so the whole excess over the pool value is a balancing charge and none of it is a chargeable gain.
| Asset | Consideration | Tax base | Taxable in the company |
|---|---|---|---|
| Goodwill | £700,000 | nil | £700,000 |
| Plant and machinery | £600,000 | pool written-down value £250,000 | £350,000 balancing charge |
| Freehold factory | £450,000 | base cost £300,000 | £150,000 |
| Stock and work in progress | £50,000 | at cost £50,000 | nil |
| Total | £1,800,000 | £1,200,000 |
| Line | Figure |
|---|---|
| Taxable profits and gains in the company | £1,200,000 |
| Corporation tax at the main rate of 25% (profits above £250,000, financial year 2026) | (£300,000) |
| Cash in the company after tax | £1,500,000 |
| Capital distribution on winding up, less base cost of £100 | £1,499,900 |
| Capital Gains Tax on the first £1,000,000 at 18% (BADR) | £180,000 |
| Remaining gain £499,900 less the £3,000 annual exempt amount, at 24% | £119,256 |
| Total Capital Gains Tax | £299,256 |
| Net proceeds to Rhian | £1,200,744 |
The same business, the same price, and £228,000 of difference. Route B also assumes the winding up delivers a capital distribution taxed under CGT rules rather than as income, which requires a Members' Voluntary Liquidation and is subject to the targeted anti-avoidance rule aimed at owners who liquidate and start again in the same trade. It also takes months longer and costs liquidator's fees the share route does not. Change the allocation between goodwill, plant and property and the corporation tax layer moves with it, which is why the asset allocation schedule in an asset sale is a negotiated document rather than an arithmetic exercise.
Every line above is reproducible from the figures printed on the page. Your own position will differ on base cost, on how much of your BADR lifetime limit is already used, on whether the property sits inside the company at all, and on your income in the year of sale. For the general framework behind both routes, see our tax on selling a business comparison and the 2026 BADR rate change explainer.
The BADR Rate Position, Dated
Business Asset Disposal Relief reduces the rate of Capital Gains Tax on qualifying business disposals, up to a lifetime limit of £1,000,000 per person, a limit fixed since 11 March 2020 and not indexed since. The rate has moved twice in two years:
| Disposal date | BADR rate |
|---|---|
| Up to 5 April 2025 | 10% |
| 6 April 2025 to 5 April 2026 | 14% |
| From 6 April 2026 | 18% |
The main Capital Gains Tax rates for individuals are 18% on gains falling within the basic-rate band and 24% above it, applying to all chargeable assets since 30 October 2024, with an annual exempt amount of £3,000 for 2026/27. Because the BADR rate and the lower main rate are now both 18%, the relief is worth nothing at all on gains that would otherwise sit inside your basic-rate band, and up to 6 percentage points on gains above it. Whether your gain sits above the band depends on your other income against the higher-rate threshold, which was £50,270 for 2025/26 and was still current when this page was checked in August 2026.
To qualify on a share sale you generally need to have held, throughout the two years ending with the disposal, at least 5% of the ordinary share capital and 5% of the voting rights together with a 5% economic entitlement, and to have been an officer or employee of a trading company. The conditions sit in TCGA 1992 sections 169H to 169S, and HMRC's reading of them runs from CG63950 in the Capital Gains Manual. Two years is long enough that a recent share reorganisation or a resignation can quietly disqualify you, so check the clock before a process starts.
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Stage Four: Diligence on a Machinery-Heavy Balance Sheet
Diligence on a manufacturer is longer than on a service business because there is more that can be independently verified, and three items generate most of the price movement.
Environmental condition. A buyer commissions a Phase 1 survey on any site with production history. Solvents, oils, heavy metals, fuel storage and historic processes all trigger a closer look, and findings turn into a price reduction, a retention out of your proceeds, or an indemnity that keeps you exposed for years after you have gone. Commissioning your own survey before you go to market puts the issue in the price from the start instead of into a renegotiation halfway through.
Plant ownership and condition. Machines on hire purchase, on lease, or subject to a supplier's retention of title are not yours to sell in the way the balance sheet implies. Reconciling the physical assets on the floor to the register, and the register to the finance agreements, is a job worth doing before a buyer does it for you. Where machinery is financed rather than owned outright, our page on manufacturing finance covers how those facilities behave.
Property. If you own the freehold it is frequently the largest single item in the deal, and a buyer may want it, may want to leave it with you and take a lease, or may not want it at all. Where the premises are held inside a SIPP or SSAS pension scheme rather than by the company, they sit outside the trading sale entirely and are dealt with separately, commonly by granting the buyer a lease. That is a structural fact about where the asset is, not a recommendation about what to do with your pension, which is regulated advice and a conversation for an authorised adviser.
Stage Five: Completion Accounts, Where Stock Moves the Final Price
Most manufacturing deals fix the headline price on assumptions about cash, debt and working capital at completion, then true it up once completion accounts have been prepared and agreed. In a factory the lines that move are stock, work in progress and trade debtors, and they can move by a lot: raw materials bought ahead of a long production run, part-finished assemblies, finished goods awaiting despatch. Buyers hunt for slow-moving and obsolete inventory in this exercise because every pound they write off comes back out of the price.
This is where the policy you wrote in the grooming year earns its keep. A stock valuation applied consistently across the two preceding year ends is difficult to argue with. One that tightened in the year of sale, or loosened, invites a line-by-line challenge you will lose more often than you win. The adjustment itself is not a separate tax event, it simply changes the consideration and therefore the gain, but a £60,000 working capital adjustment is £60,000 less in your hands either way.
Stage Six: Earn-Outs, and Being Taxed Before You Are Paid
Where part of the price depends on future performance, you are not simply waiting for money. Under the principle from Marren v Ingles, an unascertainable right to further consideration is itself a chargeable asset, valued at completion and brought into the gain then, so tax can fall due on an amount you have not yet received and might never receive. When the earn-out later pays, the difference between the cash and the value originally placed on the right is a separate gain, and Business Asset Disposal Relief is not automatically available on that second gain in the way it was on the first.
Where the earn-out is satisfied in shares or loan notes rather than cash, different rules can apply and an election may be required to get the treatment you expect. The practical point is that an earn-out clause drafted purely commercially, and shown to a tax adviser afterwards, is the most common way a manufacturing seller ends up with a tax bill they did not model. Get the clause and the tax treatment drafted together, and the time to do that is while heads of terms are still open.
Stage Seven: After Completion
The gain is reported through Self Assessment for the tax year of disposal, with payment due by the following 31 January. Where the sale included UK residential property held directly by an individual, that element carries a separate 60-day reporting and payment obligation, which rarely bites on a factory sale but does catch owners who sell an associated house or flat in the same transaction.
If the deal was an asset sale, the company still exists after completion, holding cash and whatever liabilities did not transfer. Getting the cash out is its own project with its own timetable, and the corporation tax on the disposal falls due nine months and one day after the end of the accounting period in which the sale happened, which is often before the liquidation completes. Plan the cash for that payment date rather than assuming the sale proceeds cover it on demand.
Where the Sequence Usually Goes Wrong
In our experience the pattern is consistent. Sellers spend heavily on advice at completion, when the structure is fixed and the only remaining questions are drafting ones, and spend nothing at heads of terms, when every question is still open. The worked example above is a £228,000 difference decided in a two-page document that most sellers treat as a formality.
We work with manufacturing owner directors on the grooming year and model the Capital Gains Tax and corporation tax position on both routes before heads of terms are signed, so the number you negotiate against is the one that reaches your bank account. If you want to know which route your business actually suits, and what it is worth doing in the meantime, get in touch. For the wider planning framework, see our business exit planning guide, and for the day-to-day accounting side of a factory, our page for accountants for manufacturers.
This is unregulated exit and succession advice: arranging the sale of a company by way of its shares is exempt under Article 70 of the Regulated Activities Order. We do not arrange, source or introduce the finance that funds a buyout or acquisition, which is regulated credit broking handled by an authorised commercial finance broker, and we do not advise on what to do with sale proceeds, which is regulated investment advice.
Authoritative Sources
- gov.uk: Business Asset Disposal Relief
- gov.uk: Capital Gains Tax rates and annual exempt amount
- gov.uk: Corporation Tax rates and allowances
- TCGA 1992 (BADR at ss.169H to 169S; CGT rates at s.1H and s.4)
- HMRC Capital Gains Manual CG63950 (Business Asset Disposal Relief)
- HMRC Capital Gains Manual CG67800 (disposals to Employee Ownership Trusts)
- HMRC Capital Allowances Manual CA26800 (fixtures and section 198 elections)
- HMRC Capital Gains Manual CG14850 (deferred and unascertainable consideration, Marren v Ingles)