What is CGT for businesses?

CGT for businesses isn’t as scary as it sounds. CGT just stands for Capital Gains Tax and it’s something you might need to deal with if your business sells something for more than its cost.

That could be anything from a van to a bit of land or even the business itself if you’re calling it a day. 👋

Whether you’re a one-person band or running a business with a team, there are different rules. But don’t stress, we’re here to make sense of it all.

What is Capital Gains Tax and when does it apply?

Capital Gains Tax (CGT) is a tax on the profit or “gain” when you dispose of something your business owns and it’s gone up in value.

So, what counts as “disposing”? It’s not just selling. It could be:

The tax only applies to the gain, not the full amount of money received.

So, if you bought something for £10,000 and sold it for £15,000, you’ve made a £5,000 gain and that’s what HMRC cares about. 

Things that could trigger CGT include:

• Property (not your main home)
• Shares and investments 📊
• Business assets like machinery 
• And last but not least, there’s Capital Gains Tax on selling a business 🧑‍💼

Do limited companies pay Capital Gains Tax?

Not exactly. There’s no such thing as Company Capital Gains Tax.

When a limited company sells a business asset and makes a profit, that gain is taxed through Corporation Tax instead. 

However, while the company doesn’t deal with CGT directly, those profits aren’t tax-free; they’re just taxed in a different way.

But if you sell all or part of your company, it’s a different story. You might have to pay Capital Gains Tax personally on any profit from selling your shares or on any business assets you hang onto after the sale. 

When do you not have to pay CGT?

Not every asset disposal triggers a tax bill. Here are some CGT exceptions:

• Gifts between spouses or civil partners
• Transfers to charities 
• Selling at a loss (you might even offset this against other gains!)
• Annual Exempt Amount (if you’re an individual)

How much is CGT for limited companies? 

As we said earlier, limited companies don’t pay Capital Gains Tax. Any profit made from selling business assets is taxed through Corporation Tax.

But if you make a profit personally, you could be liable for Capital Gains Tax. The rate you’ll pay depends on your Income Tax band and there’s also an annual exempt amount you can use to reduce your bill.

Reducing your Capital Gains Tax liability

CGT for businesses isn’t always avoidable, but there are smart, tax-efficient ways to reduce what you owe. Think of it as strategic planning, not just patching holes:

• Time your disposals across tax years: if you plan on selling multiple assets, spreading them out over different tax years means you can use the Annual Exempt Amount more than once. 
• Offset your gains with losses: if you’ve made a loss on another asset, you can use that to reduce the gain you’re being taxed on. These can be claimed up to four years after the loss occurred. Silver linings and all that.

These strategies won’t eliminate your CGT bill entirely, but they can definitely make it smaller and easier to deal with.

What are CGT reliefs?

If you’re a shareholder in a limited company, there are a few handy Capital Gains Tax reliefs that could reduce your bill when selling all or part of the business.

Short version: these reliefs can be seriously useful, especially when selling, gifting or reinvesting.

Reporting and paying Capital Gains Tax to HMRC

Limited companies don’t use the Capital Gains Tax system. Instead, any gains from selling business assets are reported through your company tax return. 

Corporation Tax is usually due 9 months and 1 day after the end of your company’s accounting period. So if your year-end is 31 March, your tax bill is due by 1 January the following year.

If you’re a shareholder and you’re making a personal gain, you’ll need to report it separately. For UK property, that has to be done within 60 days of the sale.

For everything else, the deadline is 31 January following the end of the tax year.

You can report personal gains through Self Assessment or via HMRC’s real-time CGT service, if you want to get it done and dusted early.

Less stress, fewer surprises

Understanding how CGT works for businesses and where it doesn’t apply can save you a lot of hassle.

While limited companies don’t pay Capital Gains Tax, gains are still taxed through Corporation Tax and if you’re selling shares or keeping hold of assets personally, CGT can still come into play.

The key takeaway? Plan ahead. Know what’s taxed, who’s paying it and when it’s due.