What is Capital Gains Tax (and are you eligible for it?)

As your business grows, it’s common to buy, sell, or replace assets along the way — from equipment and vehicles to property or investments.

While these decisions often make good commercial sense, they can also come with tax implications that aren’t always obvious at first.

One of the most important of these is capital gains tax (CGT), which can apply when you make a profit from selling or deposing certain assets. They also need to be reported to HMRC separately as the tax is not automatically deducted when doing a tax return.

If you’re eligible to pay CGT, it’s important to understand how it works, the rules that apply, and how to report it correctly. 

Below, we’ll guide you through everything you need to know about CGT, including what it is, who is eligible, and what it means for your business.

What is Capital Gains Tax?

Capital gains tax (CGT) is a tax on profits made from the sale or disposal of qualifying assets. The tax is charged on the gain (the difference between what you paid for the asset and what you sold it for), not the total amount you receive.

In the UK, CGT can apply when you sell, give away, exchange, or otherwise dispose of assets such as property (that isn’t your main home), shares, business assets, or valuable personal possessions.

CGT also only applies to sole traders or those in a partnership — not businesses set up as a limited company that pay corporation tax on profits made from the disposal of business assets.

Currently, the rates for CGT are 18% under the basic rate tax band, and 24% for the higher or additional rate tax band.

CGT can have a significant impact on your finances when you sell or dispose of assets, so knowing about it can help you avoid unexpected tax bills, plan asset sales more efficiently, and stay compliant with HMRC reporting requirements.

When do businesses pay Capital Gains Tax?

Businesses pay CGT when they sell or dispose of an asset and make a profit. You may need to pay CGT when you:

• Sell business assets such as equipment, vehicles, or property
• Transfer business assets to another person
• Close your business and sell or give away assets
• Exchange assets or receive compensation for them (such as insurance payouts)

What assets can trigger CGT?

You may be liable for CGT if you sell or dispose of chargeable assets including:

• Company shares
• Plant and machinery
• Registered trademarks
• Land and buildings
• Fixtures and fittings
• Cryptocurrency gains
• Your businesses’ reputation or ‘goodwill’

How does CGT affect businesses?

CGT applies to individuals who sell or dispose of fixed assets whilst operating within a company structure. Fixed assets have a longer life than a business’s current assets. They retain value, so when they are sold or disposed of, the profits could be liable for CGT.

Current assets are generally used up within a year and form part of the trading expenses of a business. If they are sold, they will be included as income in a company’s profit and loss account, with tax paid in the normal way.

Who is liable for CGT?

As mentioned above, sole traders and partnerships are liable for CGT, while limited companies are not.

Liability rules for UK residents, non-UK-domiciled individuals, and new arrivals who have non-UK assets or foreign income have also changed.

Previously, the latter had the option to be taxed under the remittance basis and were subject to UK tax on their UK-sourced income and gains, but only had to pay UK tax on their foreign income and gains that are remitted to or used in the UK.

Under the new rules, qualifying new residents will not have to pay tax on their foreign income and gains for four tax years after becoming a tax resident here, regardless of whether or not these funds are brought to the UK.

When is CGT triggered?

Liability for CGT applies when an asset is sold or disposed of.

If a sole trader makes the sale or disposal, they are liable for all tax due. For a business partnership, the tax levied on CGT profits from the sale or disposal will be apportioned as per the share each partner has in the partnership.

To understand whether an asset will be triggered for CGT, owners need to know what the asset was used for, as well as the amount it was sold for. For instance, virtually all main private residences are exempt, and a private car sold by a sole trader is exempt if the car wasn’t used for business.

Several other types of assets are exempt from CGT when sold or disposed of, including:

• Gifts to a spouse or civil partner
• UK government gilts (bonds issued by the government) and premium bonds
• Gifts to a registered charity
• ISA investments
• Competition, betting, lottery, or pools winnings

What are the CGT rates for businesses?

The CGT rate for basic rate taxpayers is 18%, while the CGT rate for higher rate taxpayers is 24%. These rates have not changed following the Government’s latest Autumn Budget announcement in October 2025.

If a basic rate taxpayer makes a profit after allowable deductions of £8,000, they will pay 18% tax on that amount. This would be: £8,000 @ 18% = £1,440

On the other hand, if a higher-rate taxpayer makes a gain of £12,000 after allowable deductions, they will pay 24% tax. So, £12,000 @ 24% = £2,880.

The rates for residential property gains remain unchanged. The rate for carried interest gains for both basic and higher-rate taxpayers has changed for the 2025/26 tax year — from 18% and 28%, respectively, to 32% for both types.

Are there any allowances for capital gains tax?

There are several CGT reliefs specifically designed for business owners, investors, and employees, each with its own specifications and rules. These are the most common allowances for CGT that are available, and what they mean.

Employee Ownership Trusts (EOTs)

Employee ownership trusts (EOTS) are a way for business owners to sell their company to their employees indirectly through a trust set up. Instead of employees buying shares themselves, an EOT obtains a controlling interest (more than 50%) and holds it on behalf of all eligible employees.

Following the 2025 Autumn Budget, tax relief on qualifying disposals to EOTs was drastically cut. Previously, there was 100% relief (AKA no tax) on qualifying disposals of a controlling interest in a company to an EOT, but as of November 2025, this relief has been reduced to 50% of the gain.

Annual exempt amount

The annual exempt amount (AEA) is essentially your “tax-free allowance” for capital gains. In other words, it refers to the amount of profit you can make from selling assets in a single tax year before you have to start paying CGT.

Currently, the annual CGT allowance for individuals is £3,000. For example, if you make a gain of £10,000, you can deduct £3,000 from this amount — leaving £7,000 subject to CGT tax.

Business Asset Disposal Relief

Formerly known as Entrepreneur’s Relief, Business Asset Disposal Relief (BADR) allows individuals to pay a lower rate of CGT when they sell all or part of their business. 

Business owners have a lifetime limit of £1m in BADR, which they can claim over their lifetimes. The limit can be higher if any of the assets were held before March 2020, when the lifetime limit was reduced. Currently, the rate they pay is 14%, but this is expected to increase to 18% from April 2026. 

Investors’ Relief

Investors’ Relief (IR) is a tax incentive designed to encourage long-term investment in unlisted trading companies. If you qualify for IR, any gains made when you sell eligible shares are taxed at a reduced CGT rate, rather than the standard rates.

While IR is often grouped with BADR, it only applies to individual investors, rather than employees or company founders. It is also subject to a lifetime cap on the amount of gains that can benefit from the relief. As with BADR, rates for IR are expected to increase to 18% from 6 April 2026.

Business Asset Rollover Relief

This allows you to delay paying CGT when you sell certain business assets, as long as you reinvest the proceeds into a new one.

Instead of paying tax on the gain immediately, the gain is “rolled over” into the new asset, reducing the cost for CGT purposes. This ultimately means that the CGT is postponed (not taken off), and you’ll eventually have to pay it when the replacement asset is sold or disposed of, unless other reliefs apply.

Incorporation Relief

This relief applies when a sole trader or partnership incorporates their business (AKA transferring the business into a limited company).

Rather than paying CGT immediately on the assets transferred to the company, IR lets you defer the tax. The gain is “rolled over” into the value of shares you receive in the new company, so CGT is postponed until you eventually sell those shares.

While the relief remains available following the 2025 Autumn Budget, the Government has changed it from an “automatic” benefit to a “claims-based” one. This means that, from 6 April 2026, you will have to claim IR on your Self-Assessment tax return for any business transfers.

Gift Hold-Over Relief

Gift hold-over relief lets you postpone paying CGT when you give certain business assets (or shares in a personal company) as a gift.

This means that you won’t pay tax at the time of the gift. Instead, the gain is “held over” and transferred to the person receiving the asset. They will then pay CGT when they eventually sell or dispose of it.

Key considerations for businesses

For SME owners considering an exit, the increase in BADR in the next few months is important to keep in mind.

If a buyer can be found, a deal is agreed, and all the legal steps are completed before April 2026, sellers could benefit from the current 14% rate before the 18% rate is introduced.

For example, the CGT paid for a business sold for a taxable gain of £2m in 2025/26 would be around £379,580. However, this would increase to approximately £419,460 in the 2026/27 tax year, following the increased BADR rate.

Share disposals

To sell shares in your own company, you must have been an employee, director, or company secretary for at least two years, and the company must be actively trading. Selling shares can also create CGT liability, as it’s applied to the profit on the sale of the shares.

Property disposals

CGT doesn’t apply to your main home unless it’s let out. However, it does apply to second homes, buy-to-let properties, business premises, land, and inherited property. If the property was a business asset, you may qualify for relief. Any CGT must be reported and paid within 60 days of the sale.

Conclusion

Capital gains tax is an important consideration for business owners disposing of valuable assets. Understanding when CGT applies, the rates, and the reliefs available can help you plan more effectively, reduce your tax liabilities, and avoid any unwanted surprises.

Whether you’re selling business assets, shares, or property, knowing your options — such as BADR and Business Asset Rollover Relief — can make all the difference to the amount of tax you pay.

In short, understanding CGT isn’t just about following the law. It’s about making smarter choices and keeping more of the money you’ve earned.