If I Buy a Business, Is It Tax Deductible? Share vs Asset Purchase (UK)

Last updated: October 2026.

This guide is about buying an existing UK business, either through your limited company or personally as a sole trader. It explains the difference between buying the company (shares) and buying the business (assets), what each part of the price is worth for tax, and the traps. It is general information, not tax advice: a deal of any size needs an accountant and a solicitor before you sign.

Is the cost of buying a business tax deductible?

Not as an expense. When you buy a business you are buying something that lasts, so the cost is capital expenditure. Capital cost is not deducted from your profit in the way that rent or wages are. HMRC's capital allowances guidance keeps the two apart: day-to-day running costs, items bought to resell and interest or finance costs are not capital allowance items, and are claimed as business expenses. Everything else you pay for ownership is capital.

What matters is what you get for the price. Splitting the price correctly is the whole game:

Share purchase or asset purchase: which gives more tax relief?

An asset purchase usually gives the buyer more relief. You buy the trade and its assets from the seller, so you can allocate the price to specific assets and claim allowances on those that qualify. A share purchase gives the buyer no deduction: you buy the company as it stands, with its history, and the price is just the cost of your shareholding.

The seller often prefers a share sale and the buyer an asset purchase, so expect the negotiation to turn on that. A solicitor should check the sale agreement for how liabilities are handled.

Can I claim capital allowances on assets I buy with a business?

Yes, on assets that qualify as plant and machinery. HMRC says capital allowances are tax relief on plant and machinery, including equipment, machinery and business vehicles such as vans, lorries and cars. The Annual Investment Allowance (AIA) gives a 100% deduction on most plant and machinery up to £1,000,000 a year, for sole traders, partnerships made up of individuals, and limited companies.

Points to watch:

• The AIA does not cover business cars. HMRC says for these, you claim writing down allowances instead.
• The AIA does not cover items you owned for another reason before you used them in the business, or items given to you.
• Companies controlled by the same person share one AIA between them. If you already buy a lot of equipment in another company, check the headroom.
• If the accounting period is not 12 months, the allowance is scaled down.
• Only assets you actually buy count. In a share purchase, the equipment stays in the company you bought and you get no allowance of your own.

The way the price is split between equipment, goodwill and other assets drives how much relief you get. A fair, evidenced valuation of each asset class matters because HMRC can challenge a split that looks designed to push value into the relievable assets. Get the split agreed in the contract. Our guide to buying assets through your limited company and the capital allowances guide cover buying individual assets and the other allowances.

Is goodwill tax deductible when you buy a business?

For a sole trader or partnership: do not assume so. HMRC's goodwill relief is part of the corporate intangibles regime, which applies to companies. If you are buying personally, ask your accountant what relief, if any, you get on the goodwill element.

For a company, it depends on when and what you buy. HMRC says the rules changed for purchases from 1 April 2019. In summary, from the Corporation Tax rules on goodwill and relevant assets:

• Relief is available when you buy a business that comes with qualifying intellectual property (IP), the business is liable to Corporation Tax, and the goodwill appears in the company's accounts.
• The rate is a fixed 6.5% a year. The base is the lower of the cost of the goodwill or six times the cost of the qualifying IP acquired. Relief runs each year until the cap is reached.
• You claim it through the Company Tax Return. It reduces taxable profit, and so the Corporation Tax payable.
• There is no relief where the goodwill is bought without qualifying IP, without a business, from a related individual, firm or partnership where the assets were internally generated, or from a related party previously subject to a restriction.

So a company buying a plain service business with no patents, registered designs or similar IP gets no goodwill relief under the post-2019 rules. A company buying a software or product business that comes with qualifying IP may get 6.5% a year on the goodwill, capped as above.

Earlier purchases follow earlier rules. Under HMRC's corporate intangible assets guidance, goodwill acquired between 8 July 2015 and 31 March 2019 is non-deductible, and goodwill acquired from 1 April 2002 to before those restrictions generally followed the accounts treatment.

What if I am buying my own business from myself?

This is the usual trap for founders who start as a sole trader and incorporate. If your new company buys your old sole trade, the seller is a related individual. HMRC says relief is not available where the goodwill comes from a related individual or firm. The same restriction applies to goodwill bought from related firms and partnerships. Do not plan on a goodwill deduction when you sell your own business to your own company.

What other costs of buying a business can I deduct?

Costs of the deal itself, such as legal fees and due diligence, are normally part of what you paid for the business, so they follow the capital treatment above rather than being deducted from profit. Ask your accountant how a particular fee should be treated.

One cost is different. If you borrow to fund the purchase, interest and finance costs are not capital. HMRC says finance costs are claimed as business expenses by sole traders, and deducted as business costs by limited companies. That can make a loan-funded purchase more efficient than it looks.

Buying shares can also bring Stamp Duty or Stamp Duty Reserve Tax. HMRC says Stamp Duty usually does not need to be paid if the shares cost £1,000 or less; above that, check GOV.UK for the current rate. Property in the deal can bring Stamp Duty Land Tax.

What do I get when I sell later?

If you buy shares, your purchase price is not lost: it becomes your starting cost when you sell, so it reduces the taxable gain. HMRC's principle is that it is the gain you make that is taxed, not the amount of money you receive. For the seller's side of a business sale, see our guide to Business Asset Disposal Relief.

A worked example

You run a limited company and buy a small print business for £150,000. The deal is an asset purchase. You and the seller agree:

• The £60,000 of equipment qualifies for the AIA, so it reduces taxable profit by £60,000 in the year you buy it (within the £1,000,000 limit, assuming no other claims).
• The £15,000 of stock is deducted as it is sold.
• The £75,000 of goodwill gets no relief if the business has no qualifying IP, because the post-2019 relief needs it.

So £60,000 of the £150,000 is relieved at once. Compare that with buying the company's shares for the same £150,000: no deduction, and no allowances on the equipment, because the equipment stays in the company you bought.

How AccountsOS helps

Finn records the purchase in your books, splits the price across the assets you give it, adds qualifying equipment to your fixed asset register and works out the capital allowances for your tax return. You decide the split with your adviser, and Finn does the production work after.

Frequently Asked Questions

If I buy a business, is it tax deductible?

Mostly no. The price is a capital cost. Buying shares gives no deduction. Buying assets can give capital allowances on equipment, and companies can get goodwill relief of 6.5% a year in narrow cases.

Is buying shares in a company tax deductible?

No. The cost is not deducted from profit. It is only used later, as your starting cost when you sell the shares.

Can I claim capital allowances when I buy a business?

On an asset purchase, yes, for qualifying plant and machinery, often at 100% under the Annual Investment Allowance of £1,000,000. On a share purchase, no.

Is goodwill tax deductible?

For a company buying from 1 April 2019, only if the business comes with qualifying intellectual property, at a fixed 6.5% a year up to a cap. Not where the goodwill comes from a related individual or firm. For sole traders, do not assume relief and ask your accountant.

Can I deduct the legal fees for buying a business?

Normally they form part of the cost of what you buy, so they follow the capital treatment. Ask your accountant about the particular fee.

Is the interest on a loan to buy a business deductible?

Interest and finance costs are not capital. HMRC says they are claimed as business expenses by sole traders and deducted as business costs by limited companies.

Is it better to buy shares or assets for tax?

Assets usually give the buyer more relief, because you can claim allowances on qualifying equipment. Shares give none, but you take over the company as it is. Liability risk matters as much as tax, so take legal advice.

Sources

• GOV.UK: Capital allowances
• GOV.UK: Annual investment allowance
• GOV.UK: Corporation Tax relief on goodwill and relevant assets
• GOV.UK: Corporate intangible assets, capital v revenue toolkit
• GOV.UK: Stamp Duty on shares
• GOV.UK: Capital Gains Tax

This guide is general information, not tax advice. Check your own position with an accountant before you agree to a deal.