- Capital Gains Tax on business assets: the basics
- Capital Gains Tax reliefs for business assets
- How to calculate capital gains and losses on business assets
How to calculate capital gains and losses on business assets
This step-by-step guide will help you calculate your capital gains and losses if you sell or otherwise dispose of business assets for the 2008-09 tax year.
Typical business assets include land, buildings, machinery and certain shares.
There are some easy to understand examples that will help you get your Capital Gains Tax right.
On this page:
- Working out your capital gains or losses for 2008-09
- Step 1: Work out how much you received
- Step 2: Work out how much your asset cost
- Step 3: Work out how much you spent to buy, sell or improve the asset
- Step 4: Work out the gain or loss so far
- Step 5: Apply tax reliefs
- Step 6: Work out your Capital Gains Tax bill
- If you sold your business asset before 6 April 2008
- More useful links
Working out your capital gains or losses for 2008-09
You have to work out the gain or loss separately for each business asset when you sell, give away, exchange or otherwise dispose of it. This step-by-step guide explains how to do that in straightforward cases.
If you sell or dispose of other types of assets in 2008-09, you must work out each gain or loss separately too, before you can work out your overall gain or loss.
You can find help on working out capital gains on shares, personal possessions and property in the 'More useful links' section at the bottom of this page.
Step 1: Work out how much you received
The amount received for your business asset is usually the sale price, eg the amount of money you received for the asset when you sold or disposed of it.
However, sometimes you need to use the market value of the asset (the price your asset might reasonably have been expected to fetch on a sale in the open market) instead of the sale price.
When to use market value - some examples
You use the market value of the asset instead of the sale price if, for example:
- You give the asset away.
- You intentionally sell or dispose of the asset for less than it's worth.
- You sell or dispose of the asset to a ‘connected person’, such as a close relative or a company you control. But see the special rules below if the connected person is a husband, wife or civil partner and the link below for more on 'connected persons'.
More about 'connected persons’ in the glossary
Special rules for husbands, wives and civil partners
Your husband, wife or civil partner is a person you're connected with. But unlike other people you're connected with (eg your brother), if you sell or transfer a business asset to them you usually won't have to pay any Capital Gains Tax on that disposal. You must have lived together for at least part of the tax year in which you make the disposal.
If you're separated for the whole of the year in which the disposal occurs, you must work out the gain or loss and use the market value of the asset disposed of, at the date of disposal. as the amount received.
See more on gifts, separation and divorce
Download the latest help sheet on husband and wife; civil partners - Help Sheet 281 (PDF 66K)
Step 2: Work out how much your asset cost
The cost of your business asset is normally the amount you paid for it when you bought or acquired it.
However, sometimes you need to use the market value of the asset (the price your asset might reasonably be expected to fetch on a sale in the open market) instead of the cost.
Using market value - some examples
You use the market value of the asset instead of the cost if:
- You owned the business asset at 31 March 1982 - you use its market value on that day.
- It was a gift - you use its market value when it was given to you, unless there's been a claim for Gift Hold-Over Relief (see the link below). Or see the section below if it was a gift from a husband, wife or civil partner - special rules apply.
- You inherited it - you use its market value on the date of death of the person who left it to you.
Read about reliefs including Gift Hold-Over Relief
Special rules for husbands, wives and civil partners
If you received the asset from your husband, wife or civil partner when you were living together, you usually use the amount the asset cost them.
But if your husband, wife or civil partner owned the asset at 31 March 1982 you use the market value on that day instead.
If your husband, wife or civil partner originally acquired the asset before 1 April 1998 and transferred it to you before 6 April 2008, you may be entitled to Indexation Allowance. This takes inflation into account and may reduce your tax bill.
Read more about Indexation Allowance
Checking the market value
If you want HM Revenue & Customs (HMRC) to check your valuation, to help you complete your Self Assessment tax return, you should complete and send form CG34 Post Transaction Valuation Check to your Tax Office after you've disposed of the asset.
Please allow at least two months for HMRC to check the valuation.
Go to form CG34 Post Transaction Valuation Check
Step 3: Work out how much you spent to buy, sell or improve your asset
If you've spent extra money to buy, sell or improve your business asset, you can deduct certain costs.
Costs you can deduct include:
- fees or commission for professional advice or services - for example Capital Gains Tax valuations, solicitors' and estate agent or advertising fees
- improvement costs to increase the value of the asset - but not normal maintenance costs such as repairs and decorating
- Stamp Duty Land Tax and VAT - unless you can reclaim the VAT
Find out more about reclaiming VAT
Step 4: Work out the gain or loss so far
You now need work out the gain or loss on the business asset so far.
Example
You're self-employed as a butcher.
In June 1999, you bought your shop for £75,000.
In May 2005, you built an extension to the shop that cost £10,000.
In June 2008, you sold the extended shop for £200,000.
To work out the gain or loss, you take the amount you sold the shop for (£200,000) and subtract the amount you paid for it (£75,000) along with the cost of the extension (£10,000).
This means your gain before applying any reliefs is £115,000 (£200,000 - £75,000 - £10,000).
But if you'd sold the shop for £80,000, you'd have made a loss of £5,000 instead (£80,000 - £85,000 costs).
Find out more about claiming a loss
Step 5: Apply tax reliefs
If you've worked out that, so far, you've made a gain, there are tax reliefs that may reduce or postpone that gain.
For example, the following reliefs may be available:
- Entrepreneurs’ Relief - if you sell or dispose of business assets
- Business Asset Roll-Over Relief - if you sell or dispose of business assets and reinvest the profits in certain other business assets
- Gift Hold-Over Relief - if you make a gift of a business asset
Find out more about Capital Gains Tax reliefs for business assets
Download the latest help sheet on Entrepreneurs' relief - Help Sheet 275 (PDF 99K)
Step 6: Work out your Capital Gains Tax bill
Through steps 1 to 5, you've worked out the gain or loss on a business asset and applied reliefs.
If you sell or dispose of other assets in 2008-09, you must repeat these steps to work out the separate gain or loss for each asset.
See the 'More useful links' section below for help on working out gains and losses on other types of assets, and for guidance on when and how to claim if you've made a loss.
Once you've worked out all of your individual gains and losses, for each asset you’ve sold or disposed of, you'll need to work out the overall gain or loss to see the tax due.
In most cases:
- You add together all of your gains for that tax year.
- You add together all of the allowable losses you've made for that tax year.
- You deduct the losses from the gains to work out the overall gain or loss.
- If the overall gain is below your annual tax-free allowance (known as the ‘Annual Exempt Amount’), there's no Capital Gains Tax to pay.
- If the overall gain is above the Annual Exempt Amount, you can deduct unused allowable losses from a previous tax year to reduce your gains to the Annual Exempt Amount. You can carry the rest forward to future tax years.
- If the overall gain is still above the Annual Exempt Amount, you deduct the Annual Exempt Amount and pay tax at 18 per cent on the balance.
- If you've made a loss - check out the time limits for claiming it - see the 'More useful links' section below.
Find out more about the annual tax-free allowance
Example
Mr P made a gain of £20,000 on land and buildings he sold in June 2008.
He also sold some shares in July 2008 making a gain of £50,600.
His total gains for the 2008-09 tax year are £70,600 (£50,600 + £20,000 = £70,600).
The Annual Exempt Amount for individuals for 2008-09 is £9,600.
Mr P's gains are above this amount - so he deducts the Annual Exempt Amount from his gains. He is liable to tax on £61,000 (£70,600 - £9,600 = £61,000).
The Capital Gains Tax rate is 18%.
He must pay Capital Gains Tax of £10,980 (£61,000 × 18% = £10,980).
Look up Capital Gains Tax rates and tax-free allowances
If you sold your business asset before 6 April 2008
Different rules apply if you sold or disposed of business assets before 6 April 2008.
How to calculate capital gains on business assets sold in 2007-08
More useful links
Shares - a step-by-step guide to working out your capital gains
Personal possessions - a step-by-step guide to working out your capital gains
Property - a step-by-step guide to working out your capital gains
