Capital Gains Tax Business
Business Investment CGT
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CGT on Business sale
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Capital Gains Tax is paid when a company makes a profit or sells part of, or all of, a business asset. There are several assets on which a company must pay Capital Gains Tax. These include buildings and land, fittings and fixtures, machinery and plant, Shares and Stocks, the business’s reputation – Goodwill, registered trademarks. Businesses are required to work out their gain to determine whether they are required to pay Capital Gains Tax. Sole traders and people in a business partner who are self-employed must pay Capital Gains Tax. In contrast, some other organisations, such as limited companies, pay Corporation Tax instead of profits from the sale of their assets. No Capital Gains Tax is paid on any gift to a spouse, civil partner or charity. With expert guidance from our skilled tax accountant, you can be sure that your company stays within the law when it comes to reporting and paying tax on your gain.
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Yes, both individuals and businesses in the UK may be subject to Capital Gains Tax (CGT). Capital Gains Tax is a tax on the profit when you sell or ‘dispose of’ something (an ‘asset’) that’s increased in value. For businesses, it’s important to note that companies do not pay Capital Gains Tax per se, but instead, any capital gains are added to their overall taxable profits and taxed under the Corporation Tax regime. This includes things like land, buildings, equipment, intellectual property, etc.
The gains must be reported in the Company Tax Return and CGT paid along with corporation tax within 9 months and 1 day after the end of the accounting period in which the disposal occurred. Special rules may apply for investments in which the company has substantial shareholdings (over 10%).
Yes, capital gains tax is usually payable when selling a business in the UK. Here are some key points on how it works:
- When you sell or dispose of a business, any gain made compared to the original base cost is potentially subject to capital gains tax. This applies both to sole traders and limited companies.
- For sole traders, the business assets sold are treated as disposals of individual capital assets. The owner will pay CGT at the personal tax rates of 10% or 20% depending on their income tax band.
- Limited companies pay capital gains tax at the corporation tax rate, currently 19%. All gains are taxed at this rate regardless of any personal allowance.
- Entrepreneur’s relief now called Business Asset Disposal Relief can reduce the CGT if certain conditions are met.
- Losses from previous disposals can be offset against the gain to reduce capital gains tax.
Limited Company will pay corporation tax on the sale of any investments. If it is SPV for property business, there is no CGT due when the property is sold; instead, corporation tax is charged at the prevailing rate.
- For limited companies, capital gains arising from the sale of investments like stocks, shares, bonds, funds etc. are also subject to CGT.
- The rules for calculating gains and losses on disposal of investments are the same as those for other capital assets.
- The company calculates the chargeable gain by deducting the cost of acquiring the investment and any incidental costs of acquisition and disposal from the net sale proceeds.
- Indexation allowance can be claimed to adjust the cost basis for inflation.
- Companies do not get any annual CGT exemption. The entire capital gain on the investments is taxable.
- Capital losses from disposing investments can be set off against current gains or carried forward to future years. This reduces the current tax liability.
- The CGT rate is the standard corporation tax rate, currently 19% irrespective of the holding period. The lower 10% rate does not apply to companies.
- The gains must be reported in the Company Tax Return and CGT paid along with corporation tax within 9 months and 1 day after the end of the accounting period in which the disposal occurred.
- Special rules may apply for investments in which the company has substantial shareholdings (over 10%).
- The substantial shareholding exemption may exclude some gains from CGT where conditions are met.
Capital Gains Tax on business sale is a complex calculation. There are specific reliefs and factors which must be considered and accounted for.
- Claim Business Asset Disposal Relief – This allows up to £1 million of lifetime gains to be taxed at 10% instead of 20% for higher rate taxpayers. To qualify, you must have owned the business for 2+ years and hold at least 5% of shares/voting rights.
- Use annual CGT exemptions – Individuals can deduct £12,300 and trusts £6,150 per tax year before calculating CGT. Companies don’t receive this allowance.
- Offset capital losses – Any capital losses incurred can be offset against capital gains to lower the taxable amount. Losses can be carried forward.
- Claim roll-over relief – This defers CGT if proceeds are reinvested into a new qualifying business asset. The gain crystallizes when the new asset is eventually disposed. Not available for companies.
- Hold assets over 2 years – Individuals and trusts pay lower CGT rates on gains from assets held over 2 years. This does not apply to companies.
- Claim allowable costs – Costs like legal fees, valuation costs, stamp duties related to the sale should be deducted when calculating capital gains.
- Invest via ISAs – Gains made within Individual Savings Accounts (ISAs) are CGT free in the UK.
- Use spouse’s allowances – Married couples can utilize each other’s annual exemptions and lower CGT rates.
- Incorporate – Transferring the business into a company prior to sale allows access to corporate reliefs and potentially lower tax rates.
If you need help with the sale of business and CGT calculation, call our office for a quick quote.
It is always helpful to plan for any tax payment and keep up with the HMRC guidelines. There are penalties for non-compliance and possible compliance checks by taxman if tax is not paid in time. We always advise clients to plan a year ahead if they expect to make gains when selling business or business assets.
It is always dependent on the nature of the transaction and the quantum of work involved. The fees charged by our Tax Accountants for calculating Capital Gains Tax (CGT) on the sale of a business can vary depending on several factors:
- Size and complexity of the business – More complex business structures and larger operations typically incur higher accountancy fees.
- Number and types of assets being sold – More assets mean more calculations, which can drive up costs. Some assets like property may require specialized valuation.
- Availability of records and documents – Poor record keeping requires more time and effort from the accountant.
- Use of reliefs and exemptions – Claiming things like Business Asset Disposal Relief and carry forward losses requires additional work.
If you need help to calculate CGT on the sale of your business, you can call our team for a no-obligation quote.
The deadline for paying Capital Gains Tax (CGT) on the sale of a business depends on whether you are a sole trader/partner or if the business is owned by a limited company:
For sole traders/partners:
- CGT is paid as part of your self assessment tax return
- The self assessment deadline is 31 January following the end of the tax year in which you made the disposal
- So if the tax year end is 5 April 2023 and you sold the business in the 2022/23 tax year, the CGT must be paid by 31 January 2024
For limited companies:
- CGT is paid alongside corporation tax
- It is due within 9 months and 1 day after the end of the company’s accounting period in which the disposal was made
- For example, if the accounting period end is 31 March 2023 and the disposal was made in this period, the CGT must be paid by 1 January 2024
In both cases, you need to report the gain and calculate the CGT liability in the relevant returns before paying it. Interest and penalties apply if CGT is paid late.
Not answered above?
If you need advice regarding your personal circumstances, please call our office or book an online appointment.
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