If your company or organisation is liable for Corporation Tax and sells or otherwise disposes of an asset for more than it cost, then a chargeable gain may have arisen. This gain is usually liable for Corporation Tax, and the details need to be included in your Company Tax Return for the accounting period when the asset was sold or otherwise disposed of.
This guide explains what a chargeable gain is and who has to pay Corporation Tax on the gain. It explains how to calculate the gain and how to report it to HM Revenue & Customs (HMRC). It also gives details of various tax reliefs that might reduce or defer the taxation of the chargeable gain.
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Generally, when your company or organisation sells or otherwise disposes of an asset (other than trading stock) for more than it paid for it, it may make a 'capital gain' and it may have to pay tax on this gain.
If your company or organisation is liable for Corporation Tax and makes a capital gain, that gain is known as a 'chargeable gain'. So a chargeable gain might arise if, for example:
More on the exchange of assets
Common assets that may give rise to a chargeable gain when they are sold or otherwise disposed of include:
Gains on intangible assets - for example goodwill or intellectual property - that were acquired or came into existence on or after 1 April 2002 (except assets acquired from related parties), are treated as business income rather than as a chargeable gain.
Different rules apply to some types of intangible assets that were acquired (or came into existence) before 1 April 2002.
Read more about the tax treatment of intangible assets
If your company or organisation is liable for Corporation Tax and is resident in the UK, then it pays Corporation Tax on its chargeable gains.
Who is liable for Corporation Tax
If your company or organisation is not resident in the UK, then it may not have an accounting period for Corporation Tax purposes. This means you won’t have to pay Corporation Tax on any chargeable gains on assets disposed of during that period.
But a non-resident company trading through a ‘permanent establishment’ in the UK may be liable to pay Corporation Tax on chargeable gains arising upon the disposal of assets in the UK.
Read more about how residence affects capital gains
More on company residence and permanent establishment
There are differences in the way chargeable gains are treated and the way reliefs may apply where transactions are made between companies in the same group.
Information about chargeable gains for groups of companies
You need to work out the gain or loss separately for each chargeable asset. So you should perform the following calculation steps for each chargeable asset that was disposed of during the accounting period.
This is normally the amount of money (or money’s worth) received when the asset was sold or otherwise disposed of.
However, in some cases, you may have to use its 'market value' (the price the asset might reasonably be expected to fetch if it had been sold on the open market) - for example:
Read about how to work out the value of an asset on disposal
The cost of the asset is often the amount paid, or money’s worth given, when it was purchased or otherwise acquired.
However, in some cases, you might use a different figure - for example:
Find more on calculating how much an asset cost
Information about chargeable gains for groups of companies
If you want help valuing an asset when working out chargeable gains, you may be able to use form CG34 Post Transaction Valuation Check to ask HMRC to check your valuation. You'll need to complete the form before you complete your Company Tax Return but only after you have disposed of the asset. Please allow at least two months for HMRC to provide the valuation. This is a free service. The notes to the form CG34 explain when you can use this service.
Now, subtract the cost of the asset from the figure in Step 1.
Download form CG34 - Post Transaction Valuation Check (PDF 44K)
Find your Corporation Tax Office
If you've spent extra money on buying, selling or improving the value of the asset, you may be able to deduct these costs from the amount received. Examples of what may be reasonably incurred and can be deducted are:
Now, subtract these expenses from the figure in Step 2. The result might be negative, in which case your company or organisation has made a capital loss on this asset. If the disposal of an asset results in a loss, that loss may be deducted from gains on other asset disposals. But there can be restrictions on this in some circumstances.
More on setting off capital losses
Making a loss and Corporation Tax
Find out more about allowable expenditure
Indexation Allowance allows for the effects of inflation when calculating chargeable gains. You apply it both to the cost of the asset itself and any allowable costs of acquisition used in Step 3, and then deduct it from the chargeable gain.
But Indexation Allowance can't be used to turn a gain into a loss or to increase a loss. So if you have already calculated a capital loss, you have already arrived at the final figure for the disposal of this particular asset.
To work out the Indexation Allowance to deduct, you need to first identify the correct table to use to find the inflation factors for the month when you disposed of the asset, using the link below.
Then find the entry in the table for the month when you acquired the asset or incurred the qualifying expenditure. (The example that follows shows how this works) Multiply the cost of the asset or expense by the indexation factor, and deduct this from the figure you arrived at after Step 3. If the Indexation Allowance is more than the chargeable gain, then there is no gain.
The figure you now have is the chargeable gain for this particular asset.
Find the inflation factor to be used in Indexation Allowance calculations
Read about Indexation Allowance and how it's given
| Calculation step | Result |
|---|---|
| Step 1: amount received for the asset in May 2011 | £200,000 |
| Step 2: deduct £120,000 (the cost of the asset in November 1997) | £200,000 − £120,000 = £80,000 |
| Step 3: deduct expenses on improving the asset (£10,000 spent on building an extension in June 2006) | £80,000 − £10,000 = £70,000 |
| Find the inflation factor for November 1997 | 0.474 |
| Calculate the Indexation Allowance | £120,000 × 0.474 = £56,880 |
| Deduct the Indexation Allowance | £70,000 − £56,880 = £13,120 |
| Step 4: look up the appropriate inflation factor and calculate the Indexation Allowance for the extension | 0.185 £10,000 × 0.185 = £1,850 |
| Deduct the Indexation Allowance for the extension to arrive at the chargeable gain | £13,120 − £1,850 = £11,270 |
Indexation rates
on chargeable gains
More information on calculating chargeable gains
More information on calculating indexation
You might be either exempt from or be able to defer a charge from some or all of the Corporation Tax on the sale or disposal of certain assets. Depending on the circumstances your company or organisation may, for example:
When your company or organisation sells or disposes of some types of business asset, such as land and buildings, but buys a new asset to replace it, it may be possible to reduce the cost of the new asset for chargeable gains purposes by the amount of the gain that arises on disposal of the old asset.
When the new asset is disposed of, the chargeable gain (or loss) is worked out by using the cost of the asset, less the gain that’s been rolled over. (See the section below for an example of how this works.)
For Business Asset Roll-Over Relief to apply, the asset must be a 'qualifying asset'. A qualifying asset must be used solely for the purposes of the trade. Qualifying assets may include:
But Roll-Over Relief is not available to your company or organisation if intangible fixed assets (for example goodwill) are acquired or disposed of on or after 1 April 2002.
Your company or organisation sells a shop for £80,000 making a chargeable gain of £30,000. It then buys a new shop costing £90,000 (reinvesting the £80,000 from the sale of the old shop), and claims Business Asset Roll-Over Relief on the gain of £30,000 - so no Corporation Tax is payable at this time.
But in your records, you deduct the original chargeable gain of £30,000 from the purchase cost of the new shop, making £60,000. When you dispose of the new shop, you use this figure of £60,000 - not £90,000 - in your chargeable gain calculations.
If you don’t invest the entire proceeds from the sale of the old shop into a new shop, you can’t roll-over the whole gain.
See the link below for an example of how to calculate the relief when you only reinvest part of the proceeds.
If you want to claim Business Asset Roll-Over Relief you should make a claim in writing and send it to your Corporation Tax Office. If you’ve received a ‘Notice to deliver a Company Tax Return’ from HMRC, include your claim with your Company Tax Return or amendment to that return.
Find out how to make a claim for Business Asset Roll-Over Relief
Find out how Business Asset Roll-Over Relief is reduced when you only reinvest part of the proceeds
Read more about Business Asset Roll-Over Relief
Completing and filing your Company Tax Return
Find your Corporation Tax Office
If the new asset is a depreciating asset, your company or organisation will get relief by a different method.
A depreciating asset is any fixed plant or machinery, not forming part of a building, or any asset that will have a life of 60 years or less from when it was acquired by your company or organisation.
Instead of the gain being rolled over into the cost of the new asset, it will be held over and come into charge on the earliest of the following dates:
More information on depreciating assets and Business Asset Roll-Over Relief
The Substantial Shareholding Exemption applies only to trading companies, or trading groups, who sell or otherwise dispose of shares, interests in shares and certain assets related to shares in other trading companies or holding companies of trading groups. There’s no Corporation Tax to pay on any gain on these disposals, and any losses are not allowable to set off against gains on the disposal of shareholdings outside of the Substantial Shareholdings Exemption or any other assets.
A substantial shareholding is one that amounts to more than 10 per cent of the ordinary share capital, which has been held for at least a continuous twelve-month period during the two years immediately before the shares were sold or otherwise disposed of.
The exemption is given automatically provided the disposal meets the necessary conditions. You don’t need to claim for it on your Company Tax Return, but you may find it useful to mention it on your supporting tax computations to avoid unnecessary HMRC enquiries.
More information on Substantial Shareholding Exemption
More reliefs and exemptions for capital gains
You must tell HMRC about chargeable gains at the right time.
If the company or organisation has been given a ‘Notice to deliver a Company Tax Return’, you must include any chargeable gains, (with your capital gains calculation and other supporting documentation), on the return for the accounting period in which the asset was disposed of, or when the gain arises.
But you must tell HMRC your company or organisation is liable for Corporation Tax if they haven’t sent you this notice. If you don’t, you might face a penalty.
Deadlines and requirements for Corporation Tax
Completing and filing your Company Tax Return
More about penalties for failing to notify chargeable gains
When you’ve calculated your chargeable gains individually using the steps described in this guide, add them together to arrive at your total chargeable gains. Separately, add together any capital losses made in the current accounting period, and then add that figure to any losses brought forward from previous accounting periods.
If the losses don’t exceed the gains, put the total gains in Box 16 on your Company Tax Return and the total losses, if any, in Box 17. Deduct Box 17 from Box 16 and put the result in Box 18 - this is your ‘net chargeable gain’.
If the losses do exceed the gains, leave Box 16, Box 17 and Box 18 blank but put the amount of the net loss in Box 131. You can then ‘carry forward’ those capital losses to offset against any capital gains you make in a future Corporation Tax accounting period(s). You would include those losses in Box 17 of a future Company Tax Return. You can carry forward capital losses indefinitely.
Making a loss and Corporation Tax
Read more about capital losses
When you report chargeable gains in your Company Tax Return, you'll need to keep certain records and documents to help you fill your return in and to answer any queries from HMRC during a compliance check.
In particular, you’ll need to keep your calculations for any chargeable gains you’ve included on your return.
Read more about record keeping requirements
