Capital Gains Tax Guide for Small Business: Key Information
As a small business owner in the UK, understanding Capital Gains Tax (CGT) is essential when you sell or dispose of business assets. Whether you’re selling your business, transferring shares, or disposing of property, Capital Gains Tax could apply. This guide will help you navigate CGT, its implications, exemptions, and how to manage it efficiently to minimise your tax liability.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a tax on the profit or gain made from the sale or disposal of an asset. For small businesses, this tax can apply when you sell business assets such as:
- Business property or land
- Shares in your company
- Equipment and machinery
- Intellectual property (IP)
- Vehicles
If you sell an asset for more than you paid for it, the difference is considered a capital gain and may be subject to CGT. The tax is only due on the profit made, not the full sale amount.
When Does CGT Apply to Small Businesses?
Capital Gains Tax applies in several scenarios, including:
- Selling Business Assets: If you sell or dispose of property or equipment that has appreciated in value, CGT may apply to the profit you’ve made.
- Selling Shares in Your Business: When you sell shares in your limited company, any profit from the sale may be subject to CGT.
- Transfer of Assets: If you transfer assets to a family member, shareholder, or business partner, CGT could apply.
- Dissolution or Sale of the Business: If you sell your business, you may need to pay CGT on the assets you sell.
It’s important to know when CGT applies and how it’s calculated to ensure that you comply with tax regulations.
How Is Capital Gains Tax Calculated for Small Businesses?
The amount of CGT you owe depends on the gain you make from the sale or disposal of an asset. Here’s how it’s calculated:
- Determine the Sale Price: This is the amount you received from selling the asset.
- Calculate the Cost Basis: The cost basis is typically the amount you paid for the asset, along with any related costs (e.g., improvements, transaction fees).
- Subtract the Cost Basis from the Sale Price: The difference is the capital gain.
- Apply the Tax Rate: Depending on your overall income, your CGT rate may be either 10% or 20% for basic-rate taxpayers, or 18% or 28% for higher-rate taxpayers on property sales.
If you have any losses from the sale of assets, these can be used to offset other gains in the same tax year or carried forward to reduce CGT in future years.
