Growing your business organically is great—but sometimes the fastest way to expand is by acquiring another business.
If you’re considering this, one of the first decisions you’ll face is how to structure the deal. In most cases, it will be either a share purchase or an asset purchase.
Both options can work well, but they come with very different tax implications. So, which one is right for you?
Share Purchase: Taking On the Whole Business
With a share purchase, you’re buying the company itself—shares and all.
This means you take ownership of everything, including:
- Assets
- Liabilities
- Tax history
- Any potential risks
On the surface, this can be simpler from an operational point of view. The business continues as normal, with contracts and relationships already in place.
However, there’s a key consideration: you’re also taking on any unknown liabilities. Even with warranties and indemnities in place, they’re only as reliable as the seller’s ability to stand behind them.
There’s also stamp duty to factor in, charged at 0.5% of the purchase price.
What About Tax Losses?
One potential advantage of a share purchase is access to the target company’s tax losses.
These losses can sometimes be used to offset future profits, reducing your tax bill. But it’s not always straightforward.
If there’s both:
- A change of ownership, and
- A significant change in the nature or conduct of the business
…then those losses may no longer be available.
This could apply if, for example, you change the products or services offered, target a new customer base, or move into a different market.
So, it’s worth asking: are those losses actually usable—or just theoretical?
Associated Companies: A Hidden Impact
When you acquire another company, it becomes associated with your existing business.
This can reduce the profit thresholds for corporation tax rates, meaning more of your profits may be taxed at the higher rate.
It’s something that’s often overlooked—but it can have a real impact on your overall tax position.
Asset Purchase: More Control, Less Risk
With an asset purchase, you buy selected parts of the business—such as equipment, stock, customer lists, or goodwill—rather than the company itself.
This gives you much more control. You can choose exactly what you take on and, importantly, what you leave behind.
From a tax perspective, this approach can offer some advantages.
For example, part of the purchase price can often be allocated to assets that qualify for capital allowances, giving you future tax relief.
However, there are limits. If the seller has already claimed allowances on certain assets, you may not be able to claim relief on the full value.
What About Other Taxes?
There are a few additional taxes to keep in mind.
If the purchase includes commercial property, Stamp Duty Land Tax (SDLT) may apply, potentially up to 5% of the property value.
VAT is another consideration. If the transaction doesn’t qualify as a transfer of a going concern, VAT could be added—significantly increasing the upfront cost.
Buyer vs Seller: Different Priorities
It’s worth remembering that what works best for you as a buyer may not suit the seller.
For example, sellers often prefer a share sale because it may qualify for Business Asset Disposal Relief (BADR), reducing their tax bill.
On the other hand, buyers often lean towards an asset purchase to minimise risk and avoid inheriting past issues.
This difference can play a big role in negotiations.
So, Which Option Is Best?
There’s no one-size-fits-all answer.
A share purchase may be simpler and allow continuity, but it comes with more risk. An asset purchase offers more control and flexibility, but can be more complex to structure.
The key is understanding the tax implications early—before any deal is agreed.
Let’s Talk
Thinking about buying another business?
At Jon Davies Accountants, we work with business owners across the UK to structure acquisitions in a way that’s both practical and tax-efficient.
If you’re considering a purchase, or just exploring your options, get in touch with Jon or the team today for tailored advice.
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Any questions?
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