Capital Gains Tax reliefs for business assets

If you own your business, are a partner in a business, or own shares in a business, you may be entitled to tax reliefs that reduce your Capital Gains Tax bill. Capital Gains Tax is due when you sell, give away, exchange or otherwise dispose of business assets.

The rules for each relief are different. Some assets may count as business assets for one relief but not for others. You have to claim some reliefs and you get others automatically if you are entitled.

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

Entrepreneurs' Relief allows individuals and some trustees to claim relief on qualifying gains made on the disposal of any of the following:

  • all or part of a business
  • the assets of a business after it has stopped trading
  • shares in a company

The relief applies for the years 2008-09 onwards. There is a maximum lifetime limit of Entrepreneurs' Relief you can claim.

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 you must meet

Depending on the type of disposal, you need to meet certain qualifying conditions throughout a qualifying year.

For example, you must have owned the business during the year 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

More on the qualifying conditions in the latest helpsheet on Entrepreneurs' Relief - Helpsheet 275 (PDF 134K)

The maximum lifetime limit

There's a maximum lifetime limit on the amount of Entrepreneurs' Relief you can claim on qualifying gains. The limit is:

  • the first £1 million from 6 April 2008 to 5 April 2010
  • the first £2 million from 6 April 2010 to 22 June 2010
  • the first £5 million from 23 June 2010
  • the first £10 million from 6 April 2011

How the relief works

You can make claims for Entrepreneurs' Relief on more than one occasion. The total qualifying gains in all your claims must not exceed the lifetime limit.

Capital Gains Tax is due at 10% on all qualifying gains up to the maximum lifetime limit.

Example

Mrs T stopped trading and in July 2013 sells an asset of the trade making a gain of £75,900.

The gain qualifies for Entrepreneurs' Relief, and she has no other gains or losses.

Capital Gains Tax is due on £65,000 (£75,900 less Annual Exempt Amount £10,900).

At the Entrepreneurs' Relief rate of 10% her Capital Gains Tax due is £6,500.

Read about Capital Gains Tax rates and allowances

Download the latest helpsheet on Entrepreneurs' Relief - Helpsheet 275 (PDF 134K)

See a step-by-step guide to working out your gain or loss

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Business Asset Roll-Over Relief

This applies when you dispose of some types of business asset, which you intend to replace. 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 you must meet

You must buy the new asset between 1 year before and 3 years after the date you disposed of the old asset.

HM Revenue & Customs (HMRC) may extend this time limit 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 helpsheet below for more on the qualifying conditions and time limits.

Download the latest helpsheet on Business Asset Roll-Over Relief - Helpsheet 290 (PDF 95K)

How the relief works

If you've reinvested all of the proceeds from the sale or disposal in new business assets, you can 'roll-over' (or postpone) all the gain. There'll be no tax to pay at that time.

You may still be able to postpone part of the gain if either of the following applies:

  • you only reinvested part of the proceeds
  • your old asset has only partly been used for your business, for example, you rented out a property for a time and then started using it in your trade

You 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 bought a freehold office for £45,000 and sell it 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 you have reinvested all of the proceeds.

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 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 £50,000 (£80,000 less the £30,000 gain postponed).

Example - assets used partly for business

You bought a freehold shop for £80,000 and sell it 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 5 years out of the 10 years you've owned it. Therefore 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 reinvest in a 'depreciating asset', the rules are slightly different. You may need to work out the tax due before you sell or dispose of the new asset.

A depreciating asset is one of the following:

  • fixed plant or machinery, not forming part of a building
  • an asset that will have a life of 60 years or less from the time you acquire it (for example a short term lease)

You can still postpone the gain but not always for as long - just until the earliest of the following dates:

  • 10 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 2013.

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 the lease on 1 July 2025.

You can only postpone the original gain until the earlier of:

  • 31 July 2023(10 years from the date the lease was acquired)
  • 1 July 2025 (the date you stop using the lease)
  • 1 July 2025 (the date of sale)

So the gain is postponed until 31 July 2023 (the earliest date). You'll include the gain when working out the Capital Gains Tax due for the 2023-24 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.

There’s a time limit for making a claim.

To work this out you take the later of the following 2 dates:

  • the date the old asset was disposed of
  • the date the new asset was acquired

You then work out when the end of the tax year is that follows this date and add 4 years on.

Example

You sold an asset on 12 May 2013 and bought a new asset on 14 June 2014, so the later date is 14 June 2014.

The end of the tax year in which 14 June 2014 falls is 5 April 2015.

You must make the claim by 5 April 2019, which is 4 years later.

Download the latest helpsheet on Business Asset Roll-Over Relief - Helpsheet 290 (PDF 95K)

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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 can qualify for Incorporation Relief as a sole trader or partner, when you transfer your business to a company.

Conditions you must meet

You must transfer all the business, including all its assets (other than cash), as a going concern in return for shares in the company.

How the relief works

You don't have to claim Incorporation Relief. If it's due, you will receive it automatically.

You 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.

You receive Incorporation Relief 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, Therefore, the cost of the shares to include in your calculations is £40,000. (£100,000 - £60,000 = £40,000).

Download the latest helpsheet on Incorporation Relief - Helpsheet 276 (PDF 70K)

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Gifts Hold-Over Relief

You may be able to get Gifts Hold-Over Relief if you give away a business asset. You can postpone all or part of your gain until the asset is sold or disposed of by the person you gave it to.

Who qualifies?

You may qualify for Gifts Hold-Over Relief if you're a sole trader or a partner in a business and you've given away a business asset. You may also qualify if you dispose of an asset for less than its full value.

Conditions you must meet

You can claim the relief if you use the asset in the 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 Gifts Hold-Over Relief, you'll be able to 'hold-over' or postpone it. 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 use the relief when they work out their gain. They replace the cost of the asset in their calculations with a lower amount. The lower amount is 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 £40,000 (£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 Helpsheet 295 - see the link below.

Download the latest helpsheet on relief for gifts - Helpsheet 295 (PDF 109K)

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Using your own home for business

You might work at home because you run your business from there. If you do, you'll have to look at how you've used your home when you sell or dispose of it. Then you can work out if there's any Capital Gains Tax to pay.

Rooms used for business and personal use

If you've used a room in your home for both business and private purposes, you'll still qualify for Private Residence Relief on your whole home. For example, you use a room as an office, but you also use it as a guest bedroom. For this reason you don't usually have to pay Capital Gains Tax when you sell or dispose of your main home.

Find out more about Capital Gains Tax relief on your own home

Rooms used solely for business use

If you've used any part of your home exclusively for business purposes, - you won’t get Private Residence Relief on that part. For example, you used part of your home as a joiner’s workshop. But you'll still get the relief on the part used as your main home. If you sell your home at a profit, you'll have to work out the amount of t2he relief due. Then you can work out if you have any Capital Gains Tax to pay.

Example

You use 25% of your home exclusively as business premises and 75% as your living area.

You sell your home making a gain of £100,000.

You'd be entitled to Private Residence Relief of £75,000 on the part used as your home (75% of £100,000).

You'd have to work out the Capital Gains Tax due on the remaining gain of £25,000 (£100,000 less £75,000).

Find out more about selling your own home

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Disincorporation Relief

When a business is transferred from a limited company to the shareholders, it is known as disincorporation. The shareholders continue the business in an unincorporated form - as a partnership or sole trader.

By claiming Disincorporation Relief they can transfer the assets without the company having to pay Corporation Tax on any gains.

Find out more about Disincorporation Relief and how to claim it

Later liability for Capital Gains Tax

When the assets are sold at a later date there may be Capital Gains Tax to pay.

The transfer value in the Disincorporation relief claim is used when calculating any gain.

Find out more about the calculation in the Capital Gains Tax manual

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More useful links

Business assets: how to calculate capital gains

Business assets: the basics