Capital Gains Tax for UK Business Owners: What You Need to Know Before Selling

When CGT applies to business owners#

Capital Gains Tax is charged on the profit (gain) when you dispose of an asset that has increased in value. For business owners, CGT applies to: selling shares in your limited company, selling the business as a going concern (asset sale), selling commercial property used in the business, disposing of intellectual property at a gain, and gifting business assets (where the market value is treated as the disposal proceeds). The gain is calculated as the disposal proceeds minus the original cost (and any improvement costs). CGT is reported and paid through your self-assessment tax return.

CGT rates for business owners#

The October 2024 Budget significantly changed CGT rates for business asset disposals. For qualifying business disposals under Business Asset Disposal Relief (BADR): 10% rate applies until 5 April 2025, rising to 14% from 6 April 2025, and 18% from 6 April 2026. For other business asset disposals (commercial property, investments, assets not qualifying for BADR): 18% for basic rate taxpayers and 24% for higher/additional rate taxpayers (rates from October 2024). The annual CGT exempt amount is £3,000 — significantly reduced from £12,300 in 2022-23. Given these rate changes, timing a business disposal has become more complex and specialist advice is essential.

Business Asset Disposal Relief: qualifying conditions#

Business Asset Disposal Relief (BADR), previously called Entrepreneurs' Relief, reduces the CGT rate on qualifying business disposals. To qualify for BADR on shares: you must have owned at least 5% of the ordinary shares and 5% of the voting rights for at least 2 years before disposal, have been an employee or office holder of the company for at least 2 years, and the company must have been a qualifying trading company (not predominantly an investment company) for the 2 years before disposal. BADR applies to a cumulative lifetime limit of £1 million of qualifying gains. Gains above this limit are taxed at the standard rate.

Planning your tax position before a business exit#

The tax cost of a business disposal is highly sensitive to timing and structure. Decisions made before an exit — shareholding restructuring, ensuring the 2-year BADR qualifying period is met, using the annual CGT exemption, timing the disposal across tax years, pension contributions in the year of disposal to reduce income tax and potentially the CGT rate — can significantly reduce the total tax cost. None of these strategies should be implemented without specialist advice from a tax adviser with transaction experience. The tax advice cost on a £2 million business sale is typically recovered many times over in tax saved through proper planning.

Asset sale vs share sale: the CGT perspective#

Business disposals can be structured as a share sale (the buyer purchases the shares of the company) or an asset sale (the company sells its individual assets). From a seller's CGT perspective, a share sale typically produces a more favourable outcome: the gain is the share sale price minus the original share cost (often a nominal amount), and BADR may apply, producing a relatively low CGT rate. In an asset sale, the company pays corporation tax on the gain, and then the company's funds are taxed again when extracted by the shareholders — creating double taxation. Most sellers strongly prefer share sales for this reason. Buyers often prefer asset sales to avoid inheriting legacy liabilities — this tension is one of the most negotiated points in any business sale.