How much Capital Gains Tax do you pay when selling a business?
When selling a business, you must pay Capital Gains Tax on any gains made. The rate of Capital Gains Tax you must pay will be determined by whether you qualify for Business Asset Disposal Relief. We look at how to assess if you must pay Capital Gains Tax, the rate at which you must pay Capital Gains Tax, and how to structure your business sale to maximise tax efficiency.
What is Capital Gains Tax?
Capital Gains Tax is the tax you must pay on any profits or gains made from selling a business, part of a business, or a chargeable business asset. Business assets that are subject to Capital Gains Tax include:
- land and buildings
- fixtures and fittings
- plant and machinery
- shares
- registered trademarks
- business reputation
When you plan a business sale, consider the implications of Capital Gains Tax, as this may influence the sale price of the business and the degree of flexibility you exercise in negotiations. By calculating your tax liability ahead of the business sale, you can forecast your estimated profit from the sale, which may be critical to funding your next venture or retirement.
Capital Gains Tax for limited companies differs; if a limited company sells the shares, the gains are subject to Capital Gains Tax. If a limited company sells the trade and assets, this will be subject to Corporation Tax, and then Capital Gains Tax when the company itself is closed.
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
How is Capital Gains Tax calculated when selling a business?
Capital Gains Tax applies to the gains made from selling a business. To calculate your Capital Gains Tax liability, work out your profit from the sale, which is the difference between how much you paid for the business and how much it is sold for. You must also calculate your income and remaining tax-free allowance.
Any gains made within your tax-free allowance, also known as Annual Exempt Amount, will be tax-free, however, you will need to report the gains if the sale exceeds £50,000 and you’re registered for self-assessment.
Any gains made that exceed your tax-free allowance will be subject to Capital Gains Tax and must be reported.
What is the rate of Capital Gains Tax?
Capital Gains Tax when selling a business varies based on whether you are a higher-rate taxpayer or basic-rate taxpayer, your Capital Gains tax-free allowance (currently £3,000), and whether you qualify for Business Asset Disposal Relief.
- From 6 April 2025, higher-rate taxpayers must pay Capital Gains Tax at 24%
- From 6 April 2025, basic-rate taxpayers must pay Capital Gains Tax at 18%
- From 6 April 2025, the Capital Gains Tax rate under Business Asset Disposal Relief is 14% and will increase to 18% from 6 April 2026
If you spend money on improving the business or selling the business, this can be deducted from the gain. If you report a loss, this will be deducted from the gains made in the same tax year. You can also use unused losses from previous tax years to reduce your gains if you are over the annual Capital Gains allowance for the year.
There are different Capital Gains Tax rules if you dispose of a business for less than it is worth, if you inherit the assets and the Inheritance Tax Value is unknown, or if you owned the business before April 1982.
What is Business Asset Disposal Relief?
When selling a business, you may qualify for a reduced rate of Capital Gains Tax through Business Asset Disposal Relief, formerly Entrepreneur’s Relief. If you meet the conditions for Business Asset Disposal Relief, you will pay Capital Gains Tax at a flat rate of 14%, subject to an increase in April 2026. The rate is 10% for asset disposals made on or before 5 April 2025.
You can claim up to £1 million in Business Asset Disposal Relief over your lifetime.
To qualify for Business Asset Disposal Relief, you must have owned the business for a minimum of two years. While you cannot avoid Capital Gains Tax, consider how Business Asset Disposal Relief and your tax-free allowance can lower your tax bill. You may also be able to structure the sale of your business to maximise tax efficiency.
How can Selling My Business help?
Our team will advise you on the tax implications of selling a business and the most tax-efficient ways to sell a business. For more information on Capital Gains Tax and Business Asset Disposal Relief, get in touch with a business sale expert at Selling My Business or read our comprehensive tax on selling a business guide.
