Practice valuation + sale
Law firm valuation and pre-sale planning
Law firm valuations are typically 1-3x normalised profit for partnership/LLP, sometimes higher for specialist firms, plus WIP and tangible assets. The BADR rate rises from 14% to 18% on 6 April 2026 — that single date moves £40,000 of tax per £1m of gain.
How UK law firms are actually valued
Earnings-based methodology dominates. Normalised profit × a market multiple = enterprise value. WIP is added separately because it's earned but unbilled revenue; tangible assets (computers, fit-out, occasionally premises) are added at net book value.
The multiple variance is wide: 1x for high-street general practice in a soft regional market, up to 3x+ for specialist firms (personal injury with strong CFA pipeline, niche commercial litigation, prestige private client). Conveyancing-heavy firms have been depressed by post-2022 market conditions; specialist commercial firms remain strong.
Normalising the profit number
The 'normalised' part is critical. Sale-ready EBITDA reflects what the post-sale buyer can replicate, not the seller's current take-home.
- Equity partner drawings normalised back to market salary for the role they actually fill (typically £80,000-£120,000 for fee-earning partners outside top tier)
- Personal expenses removed from the P&L (vehicle costs, family employment without genuine work, club memberships unrelated to client development)
- One-off items called out separately (PII excess on settled claim, partner exit payment, office move costs, one-off litigation)
- WIP recognised on an earnings basis (FRS 102 / FRS 105) — the older billings basis was retired via FA 2002
- Bad debt provision against aged WIP that won't convert
BADR + the 6 April 2026 rate change
Business Asset Disposal Relief is charged at 14% in 2025/26 on qualifying gains up to a £1m lifetime limit. From 6 April 2026 the rate rises to 18%. On the full £1m limit that's £40,000 of additional CGT on a 2026/27 disposal versus a 2025/26 disposal.
BADR eligibility requires 2 years of qualifying ownership, 5%+ shareholding (for incorporated firms), and employee/officer status. For an unincorporated partnership or LLP, the 2-year qualifying period applies to the firm interest. If you're planning a sale in late 2025/26 or early 2026/27, the structure and timeline need attention now.
Section 162 incorporation relief
Section 162 TCGA 1992 defers CGT on goodwill when an unincorporated trade is transferred to a company in exchange for shares. For law firms approaching sale, the typical play is: incorporate via Section 162 now, hold the shares for 2+ years to qualify for BADR on the eventual share sale, then sell the shares. The deferred goodwill gain rolls into the share base cost.
This route works when the share sale BADR position beats the asset sale alternative. We model both on actual firm numbers before recommending.
The 18-24 month pre-sale timeline
Sale-ready firms are built. The earliest decisions move the price most.
- 24 months: valuation refresh, BADR eligibility audit, Section 162 incorporation decision
- 18 months: EBITDA normalisation begins to show in the accounts, WIP discipline tightened
- 12 months: second clean accounting period in the books, broker selection, marketing prep
- 6 months: practice listed, longlist to shortlist
- 3 months: preferred buyer in due diligence, heads of terms
- Completion: BADR claim prepared for inclusion in seller's self-assessment
Worked example
Worked example: 4-partner LLP, mixed commercial
A 4-partner mixed-commercial LLP in the Midlands. Normalised profit £600,000 after market-salary adjustment for partners. Multiple 1.5x in the current market for this type of firm. Goodwill value: £900,000.
Add WIP at £180,000 and tangible assets at £40,000. Enterprise value: £1,120,000.
Each partner's qualifying gain at sale, assuming a 4-way equal allocation: £280,000. Inside the £1m BADR lifetime limit per partner.
If sale completes 1 March 2026 (2025/26 tax year): BADR at 14% = £39,200 per partner. If sale completes 1 May 2026 (2026/27): BADR at 18% = £50,400 per partner. The difference per partner: £11,200. Total firm-side timing benefit: £44,800.
Frequently asked
- What's a typical law firm multiple in 2025/26?
- Wide range. High-street general practice in soft regional markets: 0.8-1.2x normalised profit. Mid-market partnership/LLP: 1.2-2x. Specialist firms (personal injury, niche commercial litigation, prestige private client): 2-3x+. Corporate acquirers paying for strategic fit sometimes pay above. Conveyancing-heavy firms are currently depressed by post-2022 market conditions.
- What's WIP worth at sale?
- WIP is recognised on an earnings basis under FRS 102 / FRS 105. At sale, WIP is valued at the recoverable amount — what the buyer can reasonably expect to bill and collect on the open files. Aged WIP (over 6 months) is typically written down or excluded. Conveyancing WIP is usually fast-converting; litigation WIP can be slow and is discounted more aggressively.
- What's the difference between an asset sale and a share sale?
- For a law firm structured as an LLP, the sale is typically an asset sale (the buyer acquires the goodwill, WIP, and tangible assets). For a law firm incorporated as a limited company, the sale can be a share sale (the buyer acquires the company). Asset sales suit buyers who don't want to inherit historic liabilities; share sales suit sellers who want a cleaner BADR position. We model both.
- When should pre-sale planning start?
- 18-24 months before target exit. BADR eligibility (2-year qualifying period), Section 162 incorporation modelling (if going from unincorporated to share sale), EBITDA normalisation showing in the accounts buyers will see, and broker selection all need lead time. None of this can be done in the last 6 weeks.
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