If you are in business as a self-employed sole trader or as part of a partnership, there may be occasions when you are required to pay Capital Gains Tax (CGT). CGT is normally charged at a flat rate of 20% on the amount of ‘profit’ or ‘gain’.
You will usually be liable to CGT where you sell or dispose of a chargeable business asset for more than the acquisition price. CGT may also apply if you give away an asset or sell it for less than it is worth. This is because CGT under these circumstances is calculated based on the market value of an asset at the time of its disposal, not the amount of money (if any) that you sell it for. HMRC can check your valuation and it is important to keep detailed records regarding the sale and purchase of the asset.
Business assets you may need to pay tax on include:
- land and buildings
- fixtures and fittings
- plant and machinery, for example a digger
- registered trademarks
- your business’s reputation
There are various tax reliefs available that can significantly reduce or delay the amount of CGT you are required to pay such as Entrepreneurs' Relief, Business Asset Rollover Relief and Incorporation Relief. There is generally no CGT payable on gifts to your spouse, civil partner or to a charity.
It is important to remember that CGT is not payable by limited companies or unincorporated associations when they sell an asset and make a gain. Instead, the gain (less any allowable costs and reliefs) is subject to Corporation Tax.