Updated 8 November 2026: The tax-free allowance is £3,000 from 2024/25. Capital Gains Tax rates rose to 18% and 24% from 30 October 2024. Business Asset Disposal Relief is 18% from 6 April 2026, and its lifetime limit is due to fall from £1 million to £500,000 from 6 April 2027. See our Autumn Budget 2026 post.
Capital gains, as a financial term, might seem reserved for the big league players in the stock market or those with expansive property portfolios. Yet, for small business owners, understanding capital gains is just as crucial. After all, it could directly affect you the day you decide to sell your business or certain business assets.
What is Capital Gains Tax?
At its core, Capital Gains Tax (CGT) is a tax on the profit made when you sell or dispose of an asset that's increased in value. It's worth noting that it's the gain or profit you're taxed on, not the amount of money you receive. In a business context, this could relate to selling a company asset, shares, or even the business itself.
For business owners, particularly those of small and medium-sized enterprises (SMEs), CGT can have implications in various scenarios:
● If you sell or dispose of a business asset which has appreciated in value since you've owned it, you may need to pay CGT on the profit. Examples include land, buildings, and machinery.
● If you own shares in a company and sell them at a profit, CGT might come into play. However, reliefs like Entrepreneurs' Relief can reduce the tax rate for qualifying disposals.
● If you decide to sell your business as a sole trader or business partner, CGT will likely be due on the profit from the sale.
Annual Exempt Amount
Every individual has an annual tax-free allowance for capital gains, known as the Annual Exempt Amount. Any gains below this threshold won't attract CGT. This was halved for the 2023/24 tax year to £6,000 and is set to be halved again next year.
One notable relief for business owners is Entrepreneurs' Relief (recently renamed Business Asset Disposal Relief). When you sell all or part of your business, if you meet the qualifying conditions, you'll pay a reduced tax rate on profits from the sale. It's been a boon for many business owners over the years, but as with all tax matters, it's crucial to ensure you meet the criteria.
Ways to Minimise Capital Gains
Strategic planning can often mitigate the impact of CGT. Some methods include:
● Ensure you make the most of your Annual Exempt Amount. Couples can transfer assets between themselves to use both of their allowances effectively.
● If you have sold assets at a loss in the past, you might be able to offset these losses against your current gains, reducing your taxable profit.
● If you're approaching the end of the tax year and have already used up your Annual Exempt Amount, consider delaying the sale of an asset until the new tax year when your allowance resets.
● Always check if you're eligible for any reliefs, like Entrepreneurs' Relief. They can significantly reduce the amount of CGT you owe.
While Capital Gains Tax may seem a distant concern for many SME owners, it's an essential area of understanding, particularly if you have plans for the future that might involve selling assets or the business. Given the complexities surrounding CGT, including the potential reliefs and allowances, it's always a good idea to consult with financial professionals to ensure you're fully informed and making the most of the opportunities available.
Navigating the intricacies of capital gains can be challenging, but with Intellitax by your side, it becomes a breeze. Our expert team is well-versed in all aspects of business taxation. Whether you're pondering the sale of a business asset or need assistance with any other tax-related matter, we're here to help. Get in touch today.