Guide
Are M&A advisory fees VAT-able and deductible against the gain?
Updated
The fee in the engagement letter is not the fee that leaves your account, and it is not the fee that reduces your tax bill either. The two adjustments run in opposite directions.
VAT on the fee
The standard rate of VAT is 20% (gov.uk: VAT rates), and an advisory fee from a UK VAT-registered advisor carries it. On the £300,000 Double Lehman example that is £60,000 of VAT to fund at completion. Whether the seller can recover it is a genuinely contested question on a share sale, because the sale of shares is an exempt supply and input tax attributable to it is not automatically recoverable. Take specific VAT advice on your structure before you assume the fee is 20% cheaper than it looks.
Deducting the fee against the capital gain
HMRC's Capital Gains Manual sets out the incidental costs of acquisition and disposal defined by section 38 of the Taxation of Chargeable Gains Act 1992, and states that the definition is exhaustive. Allowable incidental costs are limited to fees, commission or remuneration paid for the professional services of any surveyor, valuer, auctioneer, accountant, agent or legal adviser
, and the expenditure must have been incurred wholly and exclusively for the purposes of the acquisition or disposal
(HMRC CG15250, TCGA 1992 s38).
The practical consequence is that fees have to be attributable to the disposal itself. Work that is really general strategic or market advice does not qualify on the same footing, so an engagement letter and invoices that describe the disposal work clearly are worth having. Confirm the treatment of your own fee with your accountant before you file.
The rate the gain is taxed at
Where Business Asset Disposal Relief applies, gains on qualifying assets disposed of from 6 April 2026 are taxed at 18%, against 14% between 6 April 2025 and 5 April 2026 and 10% before that. The relief is capped at a total of £1 million in Business Asset Disposal Relief over your lifetime
, and non-qualifying gains for a higher or additional rate taxpayer are charged at 24% (gov.uk: Business Asset Disposal Relief). Check the current position at the link before you model a net figure, because these rates have moved in each of the last two tax years.
Nothing here is tax advice. The interaction of VAT recovery, incidental costs and the relief depends on the structure of your sale, and the difference between a share sale and an asset sale changes all three.