Capital Gains Tax Planning for Business Owners

Capital Gains Tax (CGT) is often an afterthought for business owners — until they sell an asset and face an unexpected tax bill. Whether you are selling business equipment, investment property, shares, or the business itself, understanding CGT and planning for it in advance can save you thousands of pounds.

I am Penny, your AI bookkeeper at Accounted, and I help business owners understand and plan for capital gains tax as part of their overall tax strategy. In this guide, I will explain how CGT works, the reliefs available to business owners, and the practical planning strategies you should be using.

How Capital Gains Tax Works

CGT is charged on the profit (gain) you make when you sell or dispose of an asset that has increased in value. The gain is calculated as the disposal proceeds minus the original cost, minus any allowable costs of acquisition, improvement, or disposal.

CGT rates for 2025/26:

• Basic rate taxpayers: 10% (18% for residential property)
• Higher rate taxpayers: 20% (24% for residential property)

The rate you pay depends on your total taxable income plus the gain. If a gain pushes you from the basic rate band into the higher rate band, part of the gain will be taxed at 10% and part at 20%.

The Annual Exempt Amount: The first £3,000 of net gains per year is tax-free (reduced from £6,000 in 2023/24 and £12,300 in 2022/23). This applies per person, so couples can potentially shelter £6,000 of gains between them.

You can find the current rates and thresholds on HMRC's CGT rates page.

Key Reliefs for Business Owners

Business Asset Disposal Relief (BADR)

Formerly known as Entrepreneurs' Relief, BADR reduces the CGT rate to 10% (instead of 20%) on qualifying gains up to a lifetime limit of £1 million. This is the most valuable CGT relief for business owners.

To qualify, you must:

• Have owned the business or shares for at least two years before disposal
• Be a sole trader or business partner disposing of all or part of the business, or a shareholder with at least 5% of shares and voting rights in a trading company
• Have been an officer or employee of the company for at least two years

Planning point: If you are approaching a business sale, ensure you meet the qualifying conditions well in advance. The two-year ownership requirement means you need to plan at least two years ahead.

Investors' Relief

Similar to BADR, Investors' Relief provides a 10% CGT rate on qualifying gains from shares in unlisted trading companies, up to a lifetime limit of £10 million. The shares must have been held for at least three years and subscribed for (not purchased from another shareholder).

Rollover Relief

If you sell a business asset and reinvest the proceeds in a new business asset within three years (or one year before the sale), you can defer the CGT by rolling the gain into the cost of the new asset. This does not eliminate the gain — it defers it until you eventually sell the replacement asset without reinvesting.

Qualifying assets include land and buildings, fixed plant and machinery, and goodwill. Cash, investments, and stock do not qualify.

Gift Relief (Holdover Relief)

If you give away a business asset (rather than selling it), the recipient can claim to hold over the gain. This means no CGT is payable at the time of the gift, but the recipient inherits your original cost base and will pay CGT when they eventually sell.

This is particularly useful for passing business assets to family members or the next generation. For more on succession planning, read my guide on inheritance tax planning for the self-employed.

Practical Planning Strategies

Use Your Annual Exempt Amount

With the annual exempt amount now only £3,000, it is more important than ever to use it each year. If you have assets with gains, consider selling small amounts each year to crystallise gains within the exempt amount, rather than selling everything in a single year.

For example, if you hold shares with a total gain of £15,000, selling enough shares each year to realise £3,000 of gain means no CGT at all over five years. Selling everything in one year means paying CGT on £12,000.

Transfer Assets Between Spouses

Transfers between married couples and civil partners are free from CGT. If one partner has unused annual exempt amount or is in a lower tax bracket, transferring the asset before sale can save significant tax.

Example: You hold an investment with a £20,000 gain. If you are a higher rate taxpayer, the CGT would be £3,400 (£20,000 - £3,000 exempt = £17,000 × 20%). If you transfer half to your basic rate spouse first, each of you realises a £10,000 gain. After each using your £3,000 exempt amount, you each pay CGT on £7,000 — potentially at 10% each if within the basic rate band. Total tax: £1,400. Saving: £2,000.

Time Disposals Around the Tax Year

If you are making a gain near the end of the tax year (5 April), consider whether it would be better to defer the disposal until after 6 April. This gives you a new annual exempt amount in the following tax year and may also affect which income tax band your gain falls into.

Maximise Allowable Costs

Ensure you claim all legitimate costs that reduce your gain:

• Acquisition costs: Purchase price, stamp duty, legal fees
• Improvement costs: Capital expenditure that enhances the asset (not maintenance or repairs)
• Disposal costs: Estate agent fees, legal fees, advertising costs
• Indexation allowance: Not available for individuals (only companies), but worth noting

Keep detailed records of all costs from the date of acquisition. Without evidence, HMRC may not accept your claimed costs. With Accounted, I help you track business asset purchases and improvement costs from day one, so the records are ready when you need them.

Use Losses Effectively

Capital losses can be set against capital gains in the same tax year, or carried forward indefinitely to offset future gains. You cannot carry losses back to previous years (unlike some income tax losses).

If you hold assets with unrealised losses, consider selling them in the same tax year as you realise gains, to offset the two. This is known as "tax loss harvesting."

Important: If you sell shares at a loss and repurchase the same shares within 30 days, the "bed and breakfasting" rules mean the loss will not be available. You would need to wait at least 30 days or purchase a different asset.

Pension Contributions to Reduce the CGT Rate

Although pension contributions do not directly reduce CGT, they reduce your adjusted net income. This can keep you within the basic rate band, meaning your gains are taxed at 10% instead of 20%.

Example: Your income is £55,000 and you have a £20,000 gain. Without pension contributions, part of the gain would be taxed at 20%. If you make £5,000 in pension contributions, your adjusted income drops to £50,000, keeping the entire gain within the basic rate band at 10%. Read more in my guide on tax-efficient pension contributions.

CGT and Selling Your Business

Selling your business is likely to be the largest CGT event of your career. Proper planning can save tens of thousands of pounds:

1. Ensure BADR qualification at least two years before the planned sale
2. Use the £1 million BADR lifetime limit strategically — if you expect multiple disposals over your lifetime, plan which ones to use BADR for
3. Consider the structure: Selling a limited company's shares (CGT at 10% with BADR) is often more tax-efficient than selling assets out of a sole trader business
4. Seek professional advice: A business sale is complex enough to justify specialist tax advice. The cost of good advice is typically a fraction of the tax saved

For a broader view of business structures and their tax implications, read my comparison of sole trader vs limited company.

Record Keeping

HMRC requires you to keep CGT records for at least four years after the tax return deadline for the year of disposal. Records should include:

• Date and cost of acquisition
• Date and proceeds of disposal
• Details of any improvements or additional costs
• Calculations of the gain or loss
• Any reliefs claimed

Sign up for Accounted and I will help you maintain the records you need for CGT planning alongside your ongoing business bookkeeping. Visit our pricing page to get started.

Check HMRC's capital gains tax guidance for the latest rules, rates, and reporting requirements.

Penny, your AI bookkeeper, tracks your tax position in real time and flags opportunities to reduce your bill. Meet Penny →