Capital gains tax for small business owners explained

Published 10 March 2026

Table of contents

• What is Capital Gains Tax for small business owners?
• How much is Capital Gains Tax?
• Assets liable for Capital Gains Tax
• Assets that are usually tax-free
• How to calculate Capital Gains Tax
• Reliefs that reduce CGT for small business owners
• When to report and pay CGT
• Simplify your CGT with Xero
• FAQs on CGT for small business owners

Key takeaways

• Capital Gains Tax (CGT) applies when you dispose of chargeable assets like business assets, shares, or property.
• CGT is payable by small business owners. Companies, such as limited liability companies (LLCs), pay corporation tax on capital gains instead.
• Your CGT bill depends on your taxable income band, the asset type, and whether reliefs and the annual exempt amount apply. There are currently two CGT rates: 18% on gains that fall within the basic income band (£12,570–£50,270), and 24% thereafter.
• There are several ways you can reduce or defer your CGT. Business Asset Disposal Relief (BADR), for example, can reduce the rate to 10% on qualifying gains up to the lifetime limit.

What is Capital Gains Tax for small business owners?

Capital Gains Tax (CGT) is the tax you pay when you dispose of an asset and make a profit.

For CGT purposes, a disposal means:

• selling an asset
• giving an asset away
• transferring ownership of the asset
• exchanging it for something else

You don’t pay CGT on the total proceeds from a sale. It’s only charged on the profit you make, which is known as a capital gain.

Capital Gains Tax in the UK can apply to assets you personally own that are connected to your business or investments. These assets can include business assets, property, shares, and investments held outside a limited company. Not every asset is subject to CGT, and some gains are exempt or can be reduced by allowances and reliefs.

This guide explains CGT for small business owners as individuals. If your limited company sells property or other assets it owns, different tax rules apply, and corporation tax is charged instead.

How much is Capital Gains Tax?

British Capital Gains Tax rates depend mainly on your total income for the tax year.

From April 2025, the Capital Gains Tax rates are:

• 18% on gains that fall within the basic rate band (income between £12,570 and £50,270).
• 24% on gains above the basic rate band (income above £50,270).

When you sell an asset, your gain is added on top of your income. This means part of the gain can fall within the basic rate band, with the rest taxed at the higher CGT rate. There is no separate CGT rate for additional rate taxpayers (people who earn over £125,140 a year and pay 45% income tax on income above that amount).

The annual exempt amount

You also have an annual Capital Gains Tax allowance, known as the annual exempt amount. This means the first £3000 of your total gains in a tax year is tax-free.

You only apply this allowance after working out your total gains and losses for the year.

Assets liable for Capital Gains Tax

CGT doesn’t apply to everything you sell.

Property used in the business

Property can be confusing for CGT purposes, particularly around whether selling your home triggers a tax bill.

You only pay CGT if you sell:

• a property you own personally and use for your business, such as a shop, office, or workshop
• part of your home that has been set aside and used exclusively for business purposes

If the property is used for both business and personal purposes, only the business-use portion of any gain is subject to CGT. For example, CGT applies to a dedicated business room in your home, but not the rest of your property.

Your main home is usually exempt from CGT, though if part of it is used for business, CGT can apply to that portion when you sell. We’ll cover tax-free items later in this guide.

If you're a landlord selling rental property, see our guide on Capital Gains Tax for landlords.

Other business assets

You also pay CGT when you dispose of other business assets and make a gain, including:

• machinery and equipment
• vehicles (except cars)
• intellectual property, including patents and trademarks
• goodwill – the value of your business that comes from your reputation, brand, and customer relationships

Here is a complete list of assets you pay CGT on.

Shares and investments

Selling shares or investments triggers CGT if you make a gain.

For small business owners, this often includes:

• shares in your own company
• shares in other companies
• investments held in funds
• cryptoassets

You can reduce the amount of CGT you pay when selling shares in your own company by claiming Business Asset Disposal Relief, provided you meet the government’s conditions.

Assets that are usually tax-free

Some assets are usually exempt from CGT, even if their value increases. These include:

• your main home – this qualifies for Private Residence Relief if it's your only or main residence
• chattels – personal belongings worth £6000 or less
• cars

The final 9 months of ownership of your main home are always exempt, even if you've moved out.

Here is a complete guide to exempt assets.

How to calculate Capital Gains Tax

Calculating CGT follows a five-step process.

1. Work out sale proceeds

Start with the price the asset sold for. You can deduct costs that are related directly to the sale, such as legal or agent fees, from the sale price.

2. Deduct allowable costs

Subtract the asset acquisition cost – the original purchase price and any fees or costs involved in buying it. You can also add the cost of improvements or upgrades, but not the cost of routine maintenance or repairs.

This gives you your total gain or loss.

3. Apply reliefs and losses

If you have any capital losses from the same tax year or unused losses from previous years, you can offset these against your gain.

Some disposals may also qualify for reliefs that reduce CGT (see below).

Apply losses and reliefs before using your annual allowance.

4. Use the annual exempt amount

You then deduct any remaining annual CGT allowance from your total gains for the tax year. This allowance is £3000 – only gains above this amount are taxable.

5. Apply the correct CGT rates

Finally, apply the CGT rates to the taxable part of your gain, based on how much of it falls within the basic rate band (18%) and how much falls above it (24%).

Reliefs that reduce CGT for small business owners

Several reliefs can reduce or defer the CGT you pay, depending on the asset you sell and how you use the proceeds.

Business Asset Disposal Relief

Business Asset Disposal Relief (BADR) can reduce the rate of CGT you pay when you sell all or part of your business, shares in your company, or specific business assets you lent to the business.

You may be able to claim BADR if you’re selling:

• All or part of the business: You must be a sole trader or partner and have owned the business for at least 2 years before the sale.
• Shares: You must have been an employee or office holder for at least 2 years, and your company must be a trading company.
• Assets used in the business: The asset must have been personally owned and used in the business for at least a year, and the disposal must be linked to a qualifying disposal of the business or shares.

If you qualify, BADR applies to gains up to a lifetime limit of £1 million. Qualifying gains are taxed at 14% rather than the standard CGT rates. This rate will increase to 18% from April 2026.

Rollover relief

Rollover relief lets you delay paying CGT if you:

• reinvest the proceeds from selling a qualifying business asset into another qualifying business asset
• use them to improve an existing one

CGT on the gain is deferred until you sell the replacement asset.

Rollover relief applies only to trading assets used in the business, such as plant and machinery, rather than to investment assets like shares.

If you only reinvest part of the proceeds, you can only claim rollover relief on the amount you reinvest.

You have a 3-year window before or after selling the original asset to reinvest. You can also make a provisional claim to defer the CGT while you search for a replacement asset, and finalise the claim once you acquire it.

Gift hold-over relief

Gift hold-over relief applies when you give away certain business assets rather than selling them, including:

• business assets used in a trading business, including assets you personally own and use in the business
• shares in a personal trading company

If the relief applies, you hold over the gain and pass it on to the recipient of the asset. The recipient pays CGT only after they sell the asset.

If you sell an asset for less than its market value, HMRC usually treats the transaction as taking place at market value when working out any gain. This can mean CGT is calculated on the asset’s full value, even if you didn’t receive that amount in cash.

Transferring assets between spouses

Transfers of assets between spouses or civil partners are usually tax-free for CGT purposes.

This is a valuable planning tool. You can transfer assets to your spouse or civil partner without triggering CGT, allowing you to use both annual allowances (2 x £3000) or ensure gains are taxed at the lower rate if one partner is a basic rate taxpayer.

Incorporation relief

Incorporation relief defers CGT when you transfer your sole trader business or partnership into a limited company in exchange for shares. The tax is only triggered when you sell those shares.

If you receive a mix of shares and cash for your business, incorporation relief only applies to the part exchanged for shares – you must pay CGT on the cash you receive.

Investors’ Relief CGT reductions

When you sell shares you invested in – rather than shares in a company you run or work for – you may be able to reduce or defer the CGT you pay.

Investors’ Relief reduces the CGT rate on qualifying gains to 10% when you sell shares in an unlisted trading company. To qualify, you must have:

• subscribed for the shares
• not been an employee or director of the company
• held the shares for at least 3 years

Investors’ Relief has a lifetime gains cap of £1 million.

Investment scheme deferrals of CGT

If you decide to reinvest all or part of your gain, you may be able to defer the CGT with Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) deferral relief.

Instead of paying CGT when you sell the original shares, the tax is deferred if you reinvest the gain into qualifying EIS or SEIS shares. You must pay the CGT when you sell those shares, or another chargeable event occurs – such as giving the shares away.

Here’s more info about the SEIS from the government.

When to report and pay CGT

When and how you report CGT depends on the type of asset you sell and whether you need to pay tax.

Sixty-day UK property reporting

In the UK, residential property is subject to different CGT reporting rules from most other assets.

If you sell UK residential property and CGT is due, you must calculate the gain, report it to HMRC, and pay the CGT within 60 days of completing the sale. The deadline is based on the completion date, not when you receive the sale proceeds, so plan ahead for making the payment.

If no CGT is due, such as when you sell your main home, the 60-day report isn’t necessary.

Self Assessment filing and payment

Most other capital gains are reported through your Self Assessment tax return.

The return is due by 31 January following the end of the tax year. This is also the deadline for paying any CGT you owe.

If you sold residential property during the year and reported it through the 60-day process, you still need to include the disposal in your Self Assessment return. You won’t need to pay the CGT again, but it completes your tax record for the year.

Records to keep

You should keep records for assets where CGT may apply, including:

• when you buy or acquire an asset: the purchase price, date, and any fees or buying costs
• while you own the asset: the cost of improvements or upgrades that increase its value, and records showing how the asset was used (if split between business and personal use)
• when you sell or dispose of an asset: the sale price, date, and any fees or selling costs
• tax history: details of any reliefs or capital losses claimed on the asset

Simplify your CGT with Xero

Keeping clear records makes CGT simpler. With Xero, you can track asset costs, improvements, and disposals in one place, and share accurate information with your accountant when it’s time to calculate your tax.

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FAQs on CGT for small business owners?

Here are quick answers to some of the most common CGT questions from small business owners:

Do small businesses pay CGT or corporation tax on asset sales?

Sole traders and partnerships pay CGT when they sell business assets. But limited companies pay corporation tax on gains instead.

Does selling shares in my limited company trigger CGT?

Yes. If you sell shares in your own limited company and make a gain, you’ll owe CGT as an individual, not the company.

Do I pay 10% or 20% CGT on business assets?

CGT is now 18% or 24%, depending on your income. But some reliefs can reduce that rate as low as 10% on qualifying gains.

How much of my capital gains is tax free each year?

The first £3000 of gains you make in a tax year are tax-free. This is known as your annual CGT allowance.

Can I offset capital losses against my gains?

Yes. You can offset losses against gains in the same tax year, or carry unused losses forward to reduce CGT in future years.

Do I need to report UK residential property gains within 60 days?

Yes. If CGT is due, report and pay it within 60 days of completing the sale.