Corporation Tax When You Sell Business Assets

When your limited company sells equipment, property, shares or other assets, you'll usually need to pay Corporation Tax on any profit you make. This profit is called a 'chargeable gain', and working it out involves more than simply subtracting what you paid from what you received — you'll need to account for costs, adjustments for inflation on older assets, and any reliefs that might reduce your tax bill.

Who pays Corporation Tax on asset sales

Corporation Tax on chargeable gains applies to:

Limited companies
Most unincorporated associations, such as clubs and co-operatives
Foreign companies with a UK branch or office

If you're a self-employed sole trader or business partner, you'll pay Capital Gains Tax instead, not Corporation Tax.

What counts as a company asset

Assets are things your company owns that have value. Common examples include:

Land and property
Equipment and machinery
Shares in other companies

How to calculate your chargeable gain

The basic calculation starts with the difference between what you paid for the asset and what you sold it for. However, there are additional steps:

Use market value in certain situations: If your company gave the asset away or sold it for less than it was worth to help the buyer, you must use the market value instead of the actual sale price.

Deduct allowable costs: You can deduct costs directly related to buying, selling or improving the asset. This includes:

Solicitors' fees
Stamp Duty
Improvement costs (but not routine maintenance or repairs)

Apply indexation allowance for older assets: If your company owned the asset before December 2017, you can reduce your gain using HMRC's Indexation Allowance. This adjustment accounts for inflation and reduces the amount of tax you pay.

Working out indexation allowance

Indexation allowance is frozen as at December 2017. If you held an asset before this date, follow these steps:

1. Find the inflation factor from HMRC's Indexation Allowance December 2017 guide for the month and year your company bought the asset

2. Multiply this factor by the amount you paid for the asset

3. Deduct this amount from your profit

If you made improvements to the asset before December 2017, apply the same process using the inflation factor for when those improvements were made.

Example calculation:

Your company sold an asset in November 2015 for £200,000. You bought it in March 2001 for £120,000, and spent £10,000 improving it in June 2010.

Sale price minus purchase price: £200,000 - £120,000 = £80,000
Deduct improvement costs: £80,000 - £10,000 = £70,000 profit
Apply indexation to original purchase (inflation factor 0.509): £120,000 × 0.509 = £61,080
Apply indexation to improvements (inflation factor 0.159): £10,000 × 0.159 = £1,590
Final chargeable gain: £70,000 - £61,080 - £1,590 = £7,330

Dealing with capital losses

If you sell an asset for less than you paid for it, you make a capital loss. You can use capital losses to reduce your total chargeable gains in the same accounting period or carry them forward to future periods.

Important limitation: You can only deduct capital losses from chargeable gains — not from your company's trading income or other profits.

The loss you can claim is reduced by any amount you've already claimed as capital allowances on that asset.

Special rules for intangible assets

Intangible assets include intellectual property (such as patents, trademarks and copyrights) and business goodwill. Different rules apply depending on when your company acquired them.

Assets acquired after 31 March 2002: Include gains from these intangible assets in your company's trading profits, not as chargeable gains. You pay Corporation Tax on trading profits in the normal way.

Assets acquired before 1 April 2002: More complex rules apply. You'll need professional advice from an accountant to work out the correct treatment.

If your intangible assets came from a change in business structure (for example, when you incorporated a sole trader business or partnership), use the date the assets were originally acquired or created before the structure change.

How to report and pay

Report your chargeable gains when you file your Company Tax Return. The tax you pay is calculated at your company's Corporation Tax rate and is paid alongside your other Corporation Tax liabilities.

You can ask HMRC to check your asset valuation by completing a post-transaction valuation check form. Allow at least 3 months for HMRC's response.

Getting it right

HMRC has published a toolkit on common errors companies make when reporting chargeable gains on their tax returns. This includes checklists you can use to make sure your return is accurate.

Sources

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