How to calculate capital gains tax on business property

When you run a business, you usually own a range of assets — from property and machinery to vehicles, shares, and intellectual property. If you sell any of these assets for a profit, you may be required to pay capital gains tax (CGT).

Understanding how capital gains tax works before you sell can help you plan ahead, reduce your tax bill, and avoid unexpected cash-flow pressure. In this guide, we explain how CGT applies to businesses, when it’s payable, and how business owners can manage or reduce it effectively.

What is capital gains tax?

Capital gains tax is the tax you pay on the profit (gain) you make when selling an asset. Importantly, CGT is not charged on the full sale price — only on the difference between what you paid for the asset and what you sold it for.

Example:
If you purchased an asset for £5,000 and later sold it for £25,000, your taxable gain would be £20,000. CGT applies only to that £20,000 gain.

When does capital gains tax apply to businesses?

Whether CGT applies depends on your business structure.

Limited companies

Limited companies do not pay capital gains tax. Instead, any profit made from selling company assets is subject to corporation tax.

Sole traders and partnerships

If you operate as a sole trader or business partnership, you are personally liable for CGT on qualifying gains made from selling business assets.

When are company owners or directors liable for CGT?

Although limited companies don’t pay CGT, individuals connected to the business may still be liable, including when:

• Selling the business
• Selling shares in the company
• Selling personally owned property or assets linked to the business

Your CGT liability depends on who owns the asset and how your business is legally structured.

Which business assets are subject to capital gains tax?

Assets that may trigger CGT include:

• Land and buildings (factories, offices, farmland)
• Plant and machinery (vehicles, equipment, IT systems)
• Fixtures and fittings
• Shares and investments
• Registered trademarks and intellectual property
• Goodwill (business reputation and customer relationships)

Personal assets vs trading assets

• Personal assets (such as company shares owned by individuals) are subject to CGT when sold.
• Trading assets (used directly in business operations) are treated differently depending on your business structure.

If you’re a sole trader or partner, trading assets are treated as personal assets for tax purposes. Limited companies, however, pay corporation tax instead of CGT on trading asset disposals.

Selling part or all of a business

Selling part of a business can still trigger CGT, but special rules apply.

Sole traders and partnerships may qualify for Business Asset Disposal Relief (BADR) when selling part of a business — but only if the portion sold is a clearly distinct part of the operation.

Because eligibility can be complex, professional tax advice is strongly recommended.

Does CGT apply to selling business property?

Yes. Business property sales are subject to CGT if you are:

• A sole trader
• A partner in a partnership

Limited companies pay corporation tax instead.

Capital gains tax rates and allowances (from 6 April 2025)

CGT rates:

Higher or additional-rate taxpayers

• 24% on residential property gains
• 24% on other chargeable assets
• 32% on carried interest

Basic-rate taxpayers

• 18% on residential property gains
• 18% on other chargeable assets
• 32% on carried interest

Annual CGT exemption

Every individual receives a £3,000 annual CGT allowance, meaning you don’t pay tax on the first £3,000 of gains.

How to reduce your capital gains tax bill

Business owners can significantly reduce CGT by using available reliefs and exemptions, including:

1. Business Asset Disposal Relief (BADR)

• Reduced CGT rate of 14% on qualifying gains (from 6 April 2025)
• Lifetime limit of £1 million
• Available to sole traders and business partners

2. Business Asset Rollover Relief

• Defers CGT when reinvesting proceeds into new business assets
• Applies to land, buildings, plant, and machinery

3. Incorporation Relief

• Defers CGT when converting a sole trade or partnership into a limited company

4. Gift Hold-Over Relief

• Transfers CGT liability to the recipient when gifting business assets

5. Strategic tax planning

• Use capital losses to offset gains
• Transfer assets to a spouse or civil partner
• Fully utilise annual CGT exemptions

How to report and pay capital gains tax

CGT is usually reported through:

• Self-assessment (SA108 form), or
• HMRC’s Capital Gains Tax Service

Deadlines:

• Report by 31 December
• Pay by 31 January following the tax year of disposal

Late filing or payment can result in penalties and interest charges.

Managing cash flow when paying capital gains tax

Selling a business asset doesn’t always mean the cash arrives immediately — but your tax bill may still be due. This can create short-term cash-flow pressure.

To bridge the gap, many business owners use flexible finance solutions like an iwoca business loan, which allows you to:

• Borrow from £1,000 to £1 million
• Receive a decision within 24 hours
• Repay early with no penalties

👉 Learn more about flexible funding options here:
Clear Business Finance | Your Business Finance Experts