Overview of Business Capital Gains Tax Reliefs

If you're selling business assets or winding down your business, you could face a Capital Gains Tax bill on your profits. However, HMRC offers several tax reliefs that can reduce the amount you pay or delay the tax bill altogether. Understanding which reliefs might apply to your situation could save you thousands of pounds.

What is Capital Gains Tax on business assets?

Capital Gains Tax (CGT) applies when you sell or dispose of a business asset and make a profit. A disposal means selling, giving away, transferring or exchanging an asset.

Business assets that may trigger a CGT bill include:

• Land and buildings
• Fixtures and fittings
• Plant and machinery (such as a digger)
• Shares
• Registered trademarks
• Your business's reputation (known as goodwill)

This tax applies to sole traders and business partnerships. If you operate through a limited company, the company pays Corporation Tax on asset disposals instead, not Capital Gains Tax.

When you don't pay Capital Gains Tax

You don't usually pay CGT on gifts to your husband, wife, civil partner or a registered charity. Special rules apply to these transfers that can help you avoid an immediate tax charge.

How your gain is calculated

Your gain is usually the difference between what you originally paid for the asset and what you sold it for.

However, you must use the market value (what the asset is worth on the open market) instead of the actual sale price if you:

• Gave the asset away
• Sold it for less than it was worth to help the buyer
• Inherited the asset
• Owned it before April 1982

Deducting costs

You can reduce your gain by deducting certain costs of buying, selling or improving your asset. Allowable costs include:

• Professional fees (such as valuation or advertising costs)
• Costs to improve assets (though not ordinary repairs)
• Stamp Duty Land Tax and VAT (unless you can reclaim the VAT)

You cannot deduct:

• Interest on loans taken out to buy the asset
• Costs you've already claimed as business expenses

If you're unsure whether a particular cost is deductible, contact HMRC for guidance.

The main business tax reliefs

Several CGT reliefs are available to business owners. Each has specific eligibility criteria.

Business Asset Disposal Relief

Previously known as Entrepreneurs' Relief, this relief lets you pay CGT at a lower rate on qualifying business disposals.

For disposals between 6 April 2025 and 5 April 2026 (the 2025/26 tax year), you pay 14% CGT on qualifying gains instead of the normal rates. For disposals on or before 5 April 2025, the rate was 10%. From 6 April 2026 onwards, the rate will increase to 18%.

This relief is available to:

• Sole traders selling all or part of their business
• Business partners disposing of partnership assets
• Shareholders selling shares in their 'personal company' (broadly, a company where you hold at least 5% of shares and voting rights and work for the company)

Business Asset Rollover Relief

This relief allows you to delay paying CGT when you sell certain business assets, provided you buy replacement assets.

To qualify, you must:

• Use both the old and new assets for trading purposes only
• Buy the new asset within 3 years of selling the old one (or up to 1 year before disposal)

The tax you would have paid is effectively "rolled over" into the cost of the new asset, meaning you'll pay it when you eventually dispose of the replacement asset.

Incorporation Relief

If you're transferring your sole trader or partnership business into a limited company structure, Incorporation Relief lets you delay the CGT bill.

To qualify, you must:

• Transfer your entire business and all its assets (except cash)
• Receive shares in the company in exchange

The tax is deferred until you eventually sell the shares in the company.

Gift Hold-Over Relief

This relief means you pay no CGT when giving away business assets. Instead, the person receiving the asset takes on the tax liability and pays CGT when they eventually sell it.

You can claim this relief if you used the asset for trading as a sole trader or business partner.

Tax relief when selling your home

If you've used part of your home exclusively for business purposes, you'll normally pay CGT on that portion when you sell your home. The rest of your home benefits from Private Residence Relief, which exempts your main home from CGT.

For example, if you used one room in a five-room house solely as a business office, you may face CGT on one-fifth of any gain when you sell the property.

Reporting and paying

Once you've calculated your gain and applied any relevant reliefs, you need to determine whether you must report and pay CGT. This depends on the total amount of your gains and your available tax-free allowance (known as the Annual Exempt Amount).

If you're in a business partnership, each partner must work out their share of any gain or loss. The nominated partner must complete form SA803 to report disposals of partnership assets.

Getting it right

Choosing the right relief—or combination of reliefs—can make a significant difference to your tax bill. The rules can be complex, particularly when you're dealing with multiple asset disposals or combining different reliefs.

Keep detailed records of:

• Purchase costs and dates
• Improvement costs
• Professional fees
• Sale proceeds and dates

These records are essential for calculating your gain accurately and claiming the reliefs you're entitled to.

Sources

• Capital Gains Tax for business

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.