What Is Capital Gains Tax for Business Owners?
Capital Gains Tax is payable when you sell a business asset at a profit. Learn the rates, Business Asset Disposal Relief, and key planning opportunities.
Key Takeaways
- CGT is paid on the gain when you sell a qualifying asset — profit above the original cost
- Business Asset Disposal Relief reduces CGT to 10% on qualifying business disposals up to £1 million lifetime
- The CGT annual allowance is £3,000 — significantly reduced from £12,300 in 2022
- Business owners should plan asset sales carefully to maximise available reliefs
What Capital Gains Tax is
Capital Gains Tax is charged on the profit when you sell or dispose of an asset that has increased in value. For business owners it applies to: selling shares in a company, selling business premises or equipment, disposing of intellectual property, and selling the business itself. The gain is calculated as disposal proceeds minus the original cost and any improvement costs.
CGT rates for business owners
The CGT rate for most business asset gains is 18% (basic rate taxpayer) or 24% (higher rate taxpayer) — rates changed in the October 2024 Autumn Budget. For qualifying business disposals under Business Asset Disposal Relief, the rate is 10%, rising to 14% from April 2025 and 18% from April 2026 under the 2024 Budget. The annual CGT exempt amount is £3,000 — reduced significantly from £12,300 in 2022-23.
Business Asset Disposal Relief
Business Asset Disposal Relief (BADR), formerly Entrepreneurs' Relief, reduces the CGT rate on qualifying business disposals. To qualify: own at least 5% of shares and voting rights for at least 2 years, been an employee or officer of the company for at least 2 years, and the company must be a qualifying trading company. BADR applies to a lifetime limit of £1 million of gains. Given rate increases in the 2024 Budget, timing any business disposal requires specialist tax advice.
Holdover and Rollover Relief
Holdover Relief allows the gain on a gift of a business asset to be deferred — the recipient inherits the original cost basis and pays CGT when they eventually sell. Rollover Relief allows the gain on sale of a qualifying asset to be deferred if proceeds are reinvested in another qualifying asset within 3 years. Both allow restructuring or transfer of assets without triggering immediate CGT.
Planning opportunities
Strategies to reduce CGT impact include: maximising BADR eligibility by ensuring the 2-year qualifying period is met, making pension contributions in the year of disposal to reduce taxable income, using spouse or civil partner allowances by transferring assets before disposal (transfers between spouses are CGT-free), and timing the disposal relative to tax year end. None should be implemented without professional advice.