Capital gains tax – a guide for business owners

When do you pay capital gains tax?

Capital gains tax applies when you dispose of different types of assets, including:

• personal possessions worth £6,000 or more (for example, paintings and jewellery, but not your car)
• property that’s not your main home
• your main home, only if you’ve been renting it out or using it for business
• shares outside of individual savings accounts (ISAs) and personal equity plans (PEPs)
• business assets (including land, plant and machinery, and shares)

There are different capital gains tax rates and allowances to keep in mind, which affect the overall amount you end up paying.

What are the capital gains tax rates?

Capital gains tax rates differ depending on the income tax band you fall into (basic, higher, or additional rate). There are also different rates when you’re selling property – read our comprehensive guide to capital gains tax on property for more information.

In the Autumn Budget, the Chancellor raised the tax rate at which CGT is charged. The current CGT rates are below. 

Tax band	Tax rate on chargeable assets*
Basic rate taxpayer	18%
Higher or additional rate taxpayer	24%

*excluding property

These rates also apply to trustees or representatives of someone who’s died.

Even if you’re a basic rate taxpayer, the CGT rate you pay depends on the size of your gain, because it could push you into higher rates.

Who pays capital gains tax?

Any UK taxpayer could have to pay CGT if they sell something for a profit. Whether you have to pay Any UK taxpayer could have to pay CGT if they sell something for a profit. Whether you have to pay capital gains tax and how much you need to pay depends on:

• what you’re selling (some private possessions are exempt from CGT)
• your tax band (basic rate, higher rate, or additional rate)

Some of the most common things people need to pay CGT on include second homes, selling a business, or valuable possessions. As a result, business owners often have to pay CGT when they sell something.

Capital gains tax isn’t to be confused with income tax. If you’re selling items for a profit as a business, through a platform like Vinted or Etsy, you’ll need to pay income tax if you earn more than £1,000 a year. Read our guide to side hustle tax for more information.

Do you pay capital gains tax in Scotland?

Capital gains tax is collected in all parts of the UK. The rates and allowances for paying capital gains tax in Scotland align with the rest of the UK.

What is the capital gains tax allowance?

Also known as the capital gains tax threshold, the CGT allowance is the amount you can make in gains before having to pay tax. 

The CGT allowance has been gradually reduced in recent years, dropping from £12,300 to £6,000 in April 2023 and then to £3,000 in April 2024.

How to report and pay capital gains tax

If you reported your capital gain as part of your Self Assessment tax return, you’ll need to pay at the same time.

But if you reported your gain using HMRC’s ‘real time’ capital gains tax service, you can pay HMRC online. 

You can choose to pay with a credit or debit card, or you can approve a payment directly from your bank account. There’s an extra charge if you pay with a corporate credit or debit card.

If you’d prefer to pay your capital gains tax by bank transfer or cheque, payment details can be found on the government website.

How to calculate capital gains tax

It’s important to know when to pay capital gains tax and how much you need to pay. Here are some relevant scenarios for how capital gains tax applies to businesses.

Capital gains tax on business assets

Sole traders and business partnerships pay capital gains tax when they sell all – or part of – a business asset.

Limited companies pay corporation tax on profits, including income from selling assets, so capital gains tax doesn’t apply.

The government website gives examples of business assets that capital gains tax applies to:

• land and buildings
• fixtures and fittings
• plant and machinery (a digger, for instance)
• shares
• trademarks
• goodwill, including your business’s reputation (HMRC sees this as quantifiable when you sell the business)

To work out your taxable gain:

Calculate the profit: what’s the difference between how much you paid for the asset and how much you sold it for? You can use the asset’s market value in some situations, for example if it was a gift, or you sold it for less than it’s worth to help the buyer.

Subtract costs: these include fees for advertising the asset and money spent on improving the asset. There are some costs you can’t deduct, like interest on a loan, or costs you can claim as business expenses.
Deduct tax reliefs: tax reliefs can reduce the amount of capital gains tax you need to pay. These include business asset disposal relief, incorporation relief, business asset rollover relief, and gift hold-over relief (see more below).

Capital gains tax calculator

You can use a capital gains tax calculator, such as this one from TaxScouts, to work out how much tax you need to pay on any assets you sell.

There’s also plenty of useful CGT information on the government website.

Please use this article as a guide only. Make sure you get tax advice from a professional if you’re unsure of anything when it comes to capital gains tax.

Do you pay capital gains tax on shares?

If you buy or own shares that you sell after making a profit, it’s likely you’ll need to pay capital gains tax.

Generally, you’ll pay CGT when selling:

• shares
• units in a unit trust
• bonds 

However, it’s important to note you won’t pay CGT on: 

• shares that are part of an individual savings account (ISA) or personal equity plan (PEP)
• UK government gilts, such as Premium Bonds
• shares in employer Share Incentive Plans (SIPs)
• qualifying corporate bonds
• employee shareholder shares 

If you want to avoid paying CGT when selling shares, you can invest them into a tax-free product like a pension or ISA.

What are the tax reliefs for capital gains tax?

Tax relief	What is it?	Who can use it?
Business asset disposal relief (formerly Entrepreneurs’ relief)	Reduced 10% rate on qualifying profits	Sole traders, business partners, or those with shares in a ‘personal company’
Incorporation relief	Delay paying CGT when transferring your business to a company	Those transferring a business in return for shares (you pay CGT when you sell shares)
Business asset rollover relief	Delay paying CGT when disposing of assets you’ll replace	Those who buy the new asset within three years of disposing of the last one
Gift hold-over relief	Pay no CGT if giving an asset to someone – they pay CGT when disposing	You need to have used the asset when trading

What does Labour have planned for capital gain tax?

It’s been strongly rumoured that Chancellor Rachel Reeves may make capital gains tax changes as part of the Autumn Budget on 30 October 2024. The government has pledged not to increase income tax, National Insurance, or VAT, so CGT could be targeted to help reduce the spending deficit. 

Changes to capital gains tax could mean higher rates to pay for those disposing of assets or a further reduction (or even abolishment) of the CGT allowance.

Are there fines for not declaring capital gains tax?

There are a range of penalties for missing your CGT filing deadline or late payment:

Reason	Penalty
Late payment of CGT	5% of the tax due
Missing the filing deadline	£100
Missing the filing deadline by 3 months	£90 daily penalty (with a maximum fine of £900)
Missing the filing deadline by 6 months	£300 penalty or 5% of the tax due (whichever is greater)
Missing the filing deadline by 12 months and deliberately concealing information	£300 penalty or 100% of the tax due (whichever is greater)
Missing the filing deadline by 12 months but not deliberately concealing information	£300 penalty or 70% of the tax due (whichever is greater)

Is there anything else you need to know about capital gains tax? Let us know in the comments below.

Useful tax guides for business owners

• What is Making Tax Digital – is your business ready?
• When is the Self Assessment deadline?
• HMRC penalties for self assessment – a guide for the self-employed
• Personal tax account – how to set one up for your business