Pre-Sale Business Restructuring: Maximising Value Before Selling Your Company

When a business owner decides to sell, there is often a window — sometimes years, sometimes months — during which the structure of the business, the owner's remuneration, and the composition of assets can be adjusted to improve both the tax outcome and the commercial attractiveness of the transaction to buyers. This pre-sale restructuring work, done well and in good time, can meaningfully affect the net proceeds a seller walks away with.

This guide covers the principal restructuring tools available to owner-managed businesses, the timing constraints that apply, and the HMRC clearance requirements that underpin the main strategies.

The Importance of Timing

Pre-sale restructuring takes time to implement correctly and safely. Many of the most valuable strategies require one to three years between implementation and sale for the full tax benefits to apply. A business owner who contacts an adviser the week a buyer calls will have far fewer options than one who planned two years earlier. The most effective approach is to review the structure annually from around five years before the anticipated exit horizon.

Holdco Insertion: Creating a Cleaner Group Structure

One of the most common pre-sale restructuring steps is the insertion of a holding company above the trading company. Instead of the owner holding shares directly in the trading company ("OpCo"), a new company ("HoldCo") is interposed as the owner of OpCo, with the individual now holding shares in HoldCo.

Why do this? A holdco structure allows the owner to:

• Hold non-trading assets (surplus cash, investment property, intellectual property) in the holdco or a separate subsidiary, cleanly separated from the trading business.
• Receive dividends from OpCo into HoldCo free of corporation tax (inter-company dividends are generally exempt under the participation exemption), then redeploy capital or manage timing of personal withdrawals.
• Present buyers with a cleaner OpCo — stripped of non-core assets they would not pay full multiples for.

How is it achieved? The interposition of HoldCo is done via a share-for-share exchange under s.135 TCGA 1992. The owner transfers their OpCo shares to the newly formed HoldCo in exchange for shares in HoldCo. No CGT arises on the exchange, provided HMRC issues advance clearance under s.138 TCGA 1992 confirming the transaction is not being undertaken for the avoidance of tax. Clearance applications typically take four to eight weeks.

Conditions for clearance: HMRC will grant clearance where the exchange is genuinely driven by commercial reasons — for example, creating a group structure for operational purposes, facilitating employee incentives, or rationalising shareholder interests. Where the sole purpose is tax avoidance, clearance will be refused.

Demerging Non-Core Assets

Where the business includes non-core assets that would reduce its attractiveness to buyers (investment properties, dormant subsidiaries, surplus cash beyond normal working capital), a demerger can extract these into a separate vehicle owned by the same shareholders, without the assets being sold as part of the main transaction.

There are two principal demerger routes:

Statutory demerger (exempt distribution, CTA 2010 Part 23 Chapter 5): Available where the company being demerged has been a trading company throughout the period before demerger and the statutory conditions on trading status are met. The demerger is structured as a reduction of capital or a dividend in kind of shares in the demerged subsidiary to shareholders. No income tax arises on the distribution (it is treated as a capital distribution) and no CGT arises on the company distributing the shares, provided the statutory conditions are met. HMRC advance clearance (under s.138 TCGA and the SDLT statutory exemption) is typically sought.

Liquidation demerger: Where the statutory route is unavailable (e.g., the company has non-trading income exceeding the permitted limits), a liquidation demerger achieves a similar result through a members' voluntary liquidation — a controlled winding-up in which assets are distributed in specie to shareholders who use them to subscribe for shares in new companies. The process is more complex but achieves a clean separation. HMRC clearance under the transactions in securities rules (CTA 2010 Part 15) should be sought.

Salary Reduction Before Sale

Where a business owner has been paying themselves a salary that inflates the company's apparent payroll costs (and therefore depresses EBITDA), reducing or restructuring that salary in the years before sale can enhance the multiple received. However, this must be done carefully:

Goodwill attribution risk: HMRC has challenged cases where individuals reduce their salary artificially before sale on the basis that part of the business's goodwill is "personal" to them and would not transfer to a buyer. Where goodwill is personal, HMRC may seek to recharacterise the sale proceeds attributable to personal goodwill as income rather than capital. A robust analysis of the extent to which goodwill is personal versus institutional goodwill (transferable to a new owner) is essential.

Arm's-length salary: Any salary paid to the owner-manager must reflect genuine services rendered to the company. Reducing salary below an arm's-length level creates a different risk — HMRC may argue the company is making a distribution rather than paying salary, with adverse tax consequences.

Business Asset Disposal Relief (BADR)

BADR (formerly Entrepreneurs' Relief) reduces the effective CGT rate on qualifying disposals to 18% for gains within the £1m lifetime limit (rate and limit as at the 2026–27 tax year — the rate rose from 10% to 14% on 6 April 2025 and to 18% on 6 April 2026; confirm the current rate with your adviser). For a seller with qualifying gains within the limit, BADR is of significant value and structuring should ensure the conditions are met.

Conditions: BADR applies to gains on disposals of shares in a personal company where the individual holds at least 5% of ordinary share capital and voting rights, is an employee or officer, and has held the shares for at least two years. The company must be a trading company (or holding company of a trading group).

Dilution by share options and employee equity: If the company has issued shares under EMI or other schemes, the owner's percentage may have fallen below 5%, disqualifying BADR. This should be checked before dilutive share issuances. Remedies may include a share buyback or restructuring of the option pool to preserve the qualifying percentage.

Holding period: Two years from the date shares were acquired (not from the date of restructuring). The two-year clock does not restart when a holdco is inserted via a share-for-share exchange — the original acquisition date is preserved.

Pension Funding Before Sale

In the years leading to a business sale, making large employer pension contributions from the company into the owner's SIPP or defined benefit arrangement can reduce the company's taxable profits, reducing corporation tax, and extracting value from the company in a tax-efficient form. Key points:

• Employer pension contributions are deductible for corporation tax purposes, subject to the "wholly and exclusively" test — they must be made wholly and exclusively for the purposes of the business.
• Contributions reduce the company's profits and therefore the purchase price (since buyers typically pay a multiple of EBITDA or profit). Pre-sale pension funding therefore trades a higher sale price for a tax-free pension asset.
• The owner's individual annual allowance (£60,000 per annum for 2026–27, subject to tapered annual allowance for high earners) limits deductible contributions per year. Unused allowances from the previous three tax years may be carried forward.
• HMRC scrutinises large contributions made immediately before sale. Contributions should be part of a consistent pattern of remuneration rather than a one-off pre-sale manoeuvre.

Hive-Down of Assets

Where the business includes assets that a buyer wants to exclude (e.g., property owned by the company but retained by the owner), a hive-down — transferring those assets from the trading company into a separate subsidiary or sister company before the sale — enables the buyer to acquire the trading business without the unwanted assets. The hive-down must be done at market value (to avoid CGT or income tax complications) and the tax consequences of the transfer between group companies must be carefully managed (group relief rules under TCGA s.171 defer CGT on intra-group transfers but create a degrouping charge if the transferee company leaves the group within six years).

Key Employee Retention: Nil-Paid Shares with Growth Element

Where a sale is being contemplated, retaining key employees is critical to the buyer's confidence. A common mechanism is to issue nil-paid growth shares — shares issued at nominal value which have no economic entitlement unless the business is sold at above a defined hurdle price. These shares:

• Are issued now, starting the two-year BADR clock.
• Have no income tax consequences at issuance if the shares genuinely have nil value at the time of grant (a valuation agreed with HMRC is prudent).
• Deliver capital gains to employees on exit, qualifying for BADR on the gain above the hurdle.
• Motivate employees to support the sale process and remain with the business through completion.

Growth shares must be carefully documented as a separate class with appropriate waterfall provisions. The interaction with HMRC's employment-related securities rules (Part 7 ITEPA 2003) requires specialist advice.

Compliance Caveat

Pre-sale restructuring involves navigating interconnected areas of company law, tax law, and HMRC clearance procedures. Transactions that are not correctly structured — or where HMRC clearance is not obtained where required — can result in unexpected CGT, income tax, or stamp duty liabilities that eliminate the benefit of the planning. BADR rates, pension annual allowances, and the statutory demerger conditions are all subject to change in Finance Acts. This guide reflects the law as at June 2026. Early engagement with specialist corporate tax advisers and legal counsel is essential — ideally two to five years before the anticipated exit.

How Global Investments Can Help

Global Investments works with business owners from the earliest stages of exit planning through to completion and post-sale wealth management. We help assess the current structure of your business against your exit objectives, identify the most appropriate restructuring steps, and introduce you to the specialist tax and legal advisers who will implement them. We also provide personal financial planning to ensure that the proceeds of a business sale — whether received as a lump sum or over time — are invested and structured in a way that supports your retirement and estate planning goals. Contact us to arrange a confidential initial review.