Paying Capital Gains Tax on Business Assets
Thus, you must be able to work out your profit (e.g. a realised gain) to determine whether you need to pay CGT – or not.
Limited companies (and some organisations) will pay Corporation Tax on profits made from selling their company trading assets.
Note: The type of business assets which may be liable for CGT tax can be intellectual (e.g. a website) or physical (e.g. a shop).
When determining Capital Gains Tax for small business owners, you should include any profits (gains) realised by selling or ‘disposing of’:
- Business fixture and fittings, property, and land.
- Certain types of registered trademarks.
- Machinery or plant vehicles (e.g. a lorry or a digger).
- Stocks and shares.
- The reputation of the business (often called goodwill).
As a rule, giving business assets as gifts to a spouse, civil partner, or charity do not usually incur business Capital Gains Tax liabilities.
How to Work Out the Gain?
The gain is defined as the positive difference between the purchase price of an asset and the amount received by selling it. Even so, you would need to use the current market value rule in circumstances where you:
- Gave it away or donated it (unless given to your spouse or civil partner).
- Sold it for a lower value than it was actually worth (e.g. to help the buyer).
- Purchased the property or item before April 1982.
- Inherited the asset and cannot confirm the Inheritance Tax value (e.g. when valuing the estate of someone who’s died to get probate).
Note: Use the original purchase price to work out the gain if you are claiming Gift Hold-Over Relief on an asset gifted to you. Use the actual purchase price if you bought an item for less than its actual value.
Deducting Costs from the Gain
Certain costs may get deducted from the ‘gain’ when purchasing, selling, or making improvements to a business asset. Some of the costs that you can deduct include:
- Specialist fees (e.g. for advertising the asset, getting a valuation).
- Improvement costs (excluding normal repairs).
- Stamp Duty Land Tax and VAT (unless you can reclaim the VAT portion).
Some of the typical costs that you cannot deduct on Capital Gains Tax for business, include:
- Interest on a loan if you used it to purchase the asset.
- The usual costs that you will claim as expenses if you’re self-employed (e.g. the normal running costs of the business).
Important: You can contact HM Revenue and Customs (HMRC) to get further help and advice about the process of deducting costs from a gain.
Applying Reliefs to Reduce or Delay Paying Tax
Certain types of tax relief apply to Capital Gains Tax for small business owners. Hence, there are ways to reduce or delay making the payments providing you meet the eligibility criteria (see below).
Working Out if You Need to Pay
Once you have determined the value of the gain, you will be able to work out if you need to report and pay CGT to HM Revenue and Customs (HMRC).
Business partnerships will need to work out the value of the share for each gain or loss. The nominated business partner should complete form SA803. An accountant or a tax adviser can help you to work out your business tax responsibilities.
Reporting Losses on Chargeable Assets
Note: Another section explains how to report allowable losses to HM Revenue and Customs (e.g. to reduce total taxable gains).
Capital Gains Tax Business Relief
As a business owner, it may be possible to reduce or delay the amount of Capital Gains Tax to pay. But, you must qualify for tax reliefs in the United Kingdom.
|Type of Relief||Brief Description||Eligibility Criteria|
|Business Asset Disposal Relief (BADR)||Pay 10% Capital Gains Tax on qualifying profits if you sell all or part of your business (instead of the normal rates).||For sole traders, business partners or those with shares in a ‘personal company’.|
|Business Asset Rollover Relief||Delay paying Capital Gains Tax when you sell or dispose of some types of asset if you replace them.||Buy the new asset within three (3) years of disposing of the old one. Use the old and new assets in your business.|
|Incorporation Relief||Delay paying Capital Gains Tax when you transfer your business to a company.||Transfer all your business and its assets (except cash) in return for shares in the company.|
|Gift Hold-Over Relief||Pay no Capital Gains Tax if you give away a business asset – the person you gave it to pays tax when they sell it.||You used the business asset for trading as a sole trader or partner.|
CGT and Private Residence Relief
As a rule, you would get Private Residence Relief if you sell your main dwelling. In this case, it would not usually be liable for Capital Gains Tax. Even so, using a part of the home ‘solely’ for trade or business purposes means Capital Gains Tax may be due on that section of the building if you sell the property.
Note: A different section has further information and clarification on CGT when you sell your home (e.g. Private Residence Relief).
Capital Gains Tax Disincorporation Relief
If the business was once a limited company, but has since become a partnership or sole trader, you should be able to claim Disincorporation Relief. But, always consider getting professional help from an accountant or tax adviser.
Related CGT Help Guides
- Business tax: A basic guide for small businesses.
- Capital Gains Tax rules for personal possessions (chattels).
- Selling a business and legalities of closing down.
Note: This short video presented by HM Revenue and Customs explains what allowable expenditure you can claim against Capital Gains Tax.