- 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
Capital Gains Tax reliefs for business assets
If you own your own business, or you're a partner in a business, you may be entitled to certain tax reliefs that reduce your Capital Gains Tax bill, when you sell, give away, exchange or otherwise dispose of business assets.
Each relief has criteria that must be met before you can claim it or are automatically entitled to it. Each relief is different and some assets may count as business assets for one relief but not for others.
This guide will help you understand what Capital Gains Tax reliefs could be available to you and where to find more information.
On this page:
- Entrepreneurs' Relief
- Business Asset Roll-Over Relief
- Incorporation Relief
- Gift Hold-Over Relief
- Taper Relief
- More useful links
Entrepreneurs’ Relief
Entrepreneurs’ Relief was introduced on 6 April 2008. It allows individuals in business and some trustees to claim relief on the first £1 million of gains made on the disposal of any of the following:
- all or part of a business
- the assets of a business after it has ceased
- shares in a company
Who qualifies?
The relief is available for you as an individual if you:
- are in business, for example as a sole trader or as a partner in a trading business
- hold shares in your personal trading company
See the glossary links below for more on personal and trading companies.
The relief is also available for some trustees.
Entrepreneurs' Relief is not available for companies.
Find out more on personal companies in the glossary
Find out more on trading companies in the glossary
Conditions that must be met
Depending on the type of disposal, certain qualifying conditions need to be met throughout a qualifying one year period.
For example you must have owned the business during a one year period that ends:
- on the date your business was disposed of - if you're selling all or part of your business
- on the date your business ceased - if your business has ceased
How the relief works
Entrepreneurs’ Relief reduces the amount of gains liable to Capital Gains Tax by four-ninths on all qualifying gains up to £1 million.
You can make claims on more than one occasion as long as the total of all your claims doesn’t exceed £1 million of qualifying gains.
Example
Your business has stopped trading and a month later you sell an asset of the trade, making a gain of £90,000.
Entrepreneurs' Relief reduces the gain liable to Capital Gains Tax by four-ninths.
Four-ninths of the £90,000 gain is £40,000 (£90,000 × 4/9 = £40,000).
You must work out the Capital Gains Tax due on the remaining gain of £50,000 (£90,000 - £40,000 = £50,000).
Download the latest helpsheet on Entrepreneurs’ Relief - Help Sheet 275
See a step-by-step guide to working out your gain or loss
Business Asset Roll-Over Relief
When you sell or dispose of some types of business asset, for example an office, but intend to buy a new asset to replace it, you may be able to 'roll-over' or postpone the payment of any Capital Gains Tax that would normally be due.
Who qualifies?
You can claim the relief if you're trading and you use both the assets sold or disposed of and the new assets in your trade.
For example you may be able to get relief if you sell your butcher's shop and buy a new one.
Conditions that must be met
You must have invested in the new asset in the period between one year before and three years after the date you disposed of the old asset.
These time limits may be extended by HM Revenue & Customs (HMRC) in exceptional circumstances.
There are different additional conditions for different types of disposal - for example land and buildings must be occupied as well as used for your trade.
See the help sheet below for more on the qualifying conditions and time limits.
Download the latest help sheet on Business Asset Roll-Over Relief - Help Sheet 290 (PDF 79K)
How the relief works
If you've reinvested all of the proceeds from the sale or disposal in new business assets, you'll be able to ‘roll-over’ (or postpone) all of the gain and there'll be no tax to pay at that time.
You may still be able to postpone part of the gain if you only reinvested part of the proceeds - or if your old asset has only partly been used for your business, eg you rented out a property for a time and then started using it in your trade.
You usually only work out the tax due when you sell or dispose of the new asset. You then work out the tax due by reducing the cost of the new asset by the amount of the postponed gain.
Example
You sell your freehold office for £75,000.
You make a gain of £30,000.
You reinvest all of the proceeds in new freehold business premises costing £90,000.
You can postpone the whole of the £30,000 gain made on the sale of the old office, as all of the proceeds have been reinvested.
When you sell the new business premises and work out your Capital Gains Tax bill, you'll treat the cost of the new premises as £60,000 (£90,000 less the £30,000 gain).
Example - proceeds partly reinvested
You bought a freehold office for £50,000 and sold it for £100,000. You've made a gain of £50,000.
The new business premises cost £80,000.
The office was disposed of for £100,000 and you reinvested £80,000. The amount not reinvested is £100,000 - £80,000 = £20,000.
The amount of the gain that you can postpone is restricted.
You deduct the amount not reinvested (£20,000) from the gain (£50,000). You can postpone the difference of £30,000 (£50,000 - £20,000 = £30,000).
When you sell the new office and work out your Capital Gains Tax bill, you'll treat the cost of the new business premises as £60,000 (£90,000 less the £30,000 gain postponed).
Example - assets used partly for business
You sell your freehold shop for £100,000, reinvesting all of the proceeds in a new asset.
You make a gain of £20,000.
But you've only used the shop in your trade for five years out of the ten years you've owned it, so it only qualifies as a business asset for 50% of the time.
You can only postpone 50% of the gain, so the postponed gain is £10,000 (50% of the £20,000 gain).
You'll need to work out the Capital Gains Tax due on £10,000 (the remaining 50% of the gain).
Depreciating assets
If you re-invest in a 'depreciating asset', the rules are slightly different and you may need to work out the tax due before you sell or dispose of the new asset.
A depreciating asset is fixed plant or machinery, not forming part of a building, or an asset that'll have a life of 60 years or less from the time you acquire it (eg a short term lease).
You can still postpone the gain but not always for as long - just until the earliest of the following dates:
- ten years from when you bought or acquired the new asset
- the date you stop using the new asset in your trade
- the date you sell or dispose of the new asset
Example
You sold your shop for £125,000 and spent £135,000 on a 30 year lease on 1 August 2008.
You made a gain of £20,000 on the sale of the shop and postponed all of the gain.
You use the leased premises in your trade and sell it on 1 July 2020.
You can only postpone the original gain until the earlier of:
- 31 July 2018 (10 years from the date the lease was acquired)
- 1 July 2020 (the date you stop using the lease)
- 1 July 2020 (the date of sale)
So the gain is postponed until 31 July 2018 (the earliest date). You'll include the gain when working out the Capital Gains Tax due for the 2018-19 tax year.
How to claim the relief
To make a claim, use the link to the helpsheet below - you'll find a claim form on the last page.
To work out the time limit for making a claim, you:
1. work out the later of the following two dates:
- the date the old asset was disposed of
- the date the new asset was acquired
2. work out when the end of the tax year is that follows this date
3. take the following 31 January
4. add five years on
Example
1. You sold an asset in 2008-09 and bought a new asset in 2009-10, so the later date is 2009-10.
2. The end of that tax year is 5 April 2010.
3. The 31 January after the end of that tax year is 31 January 2011.
4. You must make the claim by 31 January 2016, five years later.
Download the latest help sheet on Business Asset Roll-Over Relief - Help Sheet 290 (PDF 79K)
Incorporation Relief
If you incorporate your business, that is, you transfer your business to a company, Capital Gains Tax may not be due at that time.Who qualifies?
You qualify for Incorporation Relief if you're in business, for example as a sole trader or as a partner in a business partnership, and you've transferred your business to a company.
Conditions that must be met
The business, including all of the assets of the business (other than cash), must be transferred as a going concern in return for shares in the company it's transferred to.
How the relief works
The relief, if due, is given automatically, so you don't have to make a claim.
You usually only work out the tax due when you sell or dispose of the shares received.
You then work out the tax due by reducing the cost of the shares by the amount of the postponed gain.
Example
You're a sole trader and incorporate your business, transferring all of the assets in return for shares.
You receive 1,000 £1 ordinary shares in the new company ABC Ltd with a market value of £100,000.
You make a gain of £60,000 on the assets you disposed of to the company.
Incorporation Relief is given automatically, so you don't pay Capital Gains Tax on the gain made at that time.
You later dispose of the shares and work out the gain.
You take the cost of the shares as £100,000 less the £60,000 original gains, so the cost of the shares to include in your calculations is £40,000. (£100,000 - £60,000 = £40,000).
Download the latest help sheet on Incorporation Relief - Help Sheet 276 (PDF 66K)
Gift Hold-Over Relief
If you give away a business asset, all or part of your gain may be postponed until the asset is sold or disposed of by the person you gave it to.
Who qualifies?
If you're in business, for example as a sole trader or as a partner in a business partnership, and you've given away a business asset - or disposed of it for less than its full value - you may qualify for Gift Hold-Over Relief.
Conditions that must be met
You can claim the relief if the asset is used in a trade or profession carried on by you or your personal company. Use the glossary link below for more on personal companies.
For example you may be able to get relief if you give away your business premises to your son or daughter.
Shares in trading companies also count as business assets for this relief if they're not listed on a recognised stock exchange.
Find out more on personal companies in the glossary
Find out more on trading companies in the glossary
How the relief works
If all of the gain qualifies for Gift Hold-Over Relief, you'll be able to 'hold-over' or postpone all of the gain and there'll be no tax to pay on the disposal at that time.
You may still be able to postpone part of the gain if you receive something for the asset, but you'll have to work out the tax due on the remainder of the gain.
The person you give the asset to will work out their gain on the disposal by replacing the cost of the asset in their calculations with an amount equal to the market value of the asset at the time of the gift, less the 'held-over' or postponed gain.
Example - full relief due
You give a workshop with a market value of £35,000 to your brother.
The workshop cost £20,000, so you've made a gain of £15,000 (£35,000 market value at the time of the gift less £20,000 cost).
You jointly claim Gift Hold-Over Relief, so you have no tax to pay on this gain.
When your brother disposes of the asset, he will need to work out his gain or loss. He will include a cost of £20,000 in his calculations. That's the market value at the date of the gift (£35,000) less the gain (£15,000) = £20,000.
Example - partial relief due
You give a shop with a market value of £81,000 to your brother.
Your brother pays you £40,000, so you're not due full Gift Hold-Over Relief.
The shop cost £23,000, so you make a gain of £58,000 (£81,000, the market value at the time of the gift, less the £23,000 it cost).
You must pay any Capital Gains Tax due on the amount your brother paid you less your original cost. That's £17,000 (£40,000 less £23,000).
You can jointly claim Gift Hold-Over Relief on the remaining £41,000 of the gain (£58,000 gain less £17,000).
When your brother disposes of the asset, he will need to work out his gain or loss - his cost will be the market value at the date of the gift (£81,000) less the relief you've received (£41,000).
So the cost figure he will use is £60,000 (£81,000 less £41,000).
How to claim the relief
You and the person receiving the gift must make a formal claim. The exception is when you give an asset to trustees - then only you need to make the claim. You should fill in the form you'll find in Help Sheet 295 - see the link below.
Download the latest help sheet on relief for gifts - Help Sheet 295 (PDF 101K)
Taper Relief
Taper Relief only applies if you sold or disposed of business assets in the 2007-08 tax year or earlier.
Find out how to work out Taper Relief
