Ever sold a business asset only to discover HMRC wants a significant slice of the profit? That is Capital Gains Tax (CGT) in action, and it catches many UK business owners off guard. CGT applies to the gain you realise when you sell or dispose of an asset that has increased in value, not the total proceeds. For a typical owner-managed company, this might mean selling the firm's goodwill, a piece of machinery, or your shareholding. The gain is straightforward: your sale price minus the original cost, plus any allowable expenditure such as legal fees on acquisition or capital improvements.
A common trap involves selling business assets and forgetting about the annual exempt amount, which for 2025/26 is just £3,000, down from £6,000 in 2023/24. This means even modest disposals can trigger a tax bill. If you sell a client list or a piece of specialised equipment for a gain of £15,000, the taxable amount is £12,000. Without relief, a higher-rate taxpayer pays 20% on that, or £2,400. Losses can reduce this: you can offset losses against gains in the same year or carry them forward, but you must notify HMRC within four years of the end of the tax year.
For limited company directors, the most significant CGT event is often selling their shares. Business Asset Disposal Relief (BADR), formerly Entrepreneurs' Relief, is the key relief here. It applies a reduced rate of 14% on gains up to a lifetime limit of £1 million for the 2025/26 tax year. However, this rate is scheduled to rise to 18% from 6 April 2026. If you are planning an exit, the timing of the sale can make a substantial difference. For a gain of £500,000, the tax under BADR in 2025/26 is £70,000; after April 2026 it becomes £90,000. Without BADR, gains on shares are taxed at 20% for higher-rate taxpayers or 10% for basic-rate taxpayers to the extent the gain falls within the basic-rate band.
Personal assets like a buy-to-let property or shares in an unconnected company are treated separately. The residential property rate for 2025/26 is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. You must report and pay CGT on property disposals within 60 days of completion using HMRC's real-time property reporting service. Missing this deadline incurs interest and penalties, so it is worth diarising immediately after exchange.
What this means for your business: Whether you are a sole trader selling a van or a director exiting a company, CGT planning should happen before the sale, not after. The shrinking annual allowance, the pending BADR rate increase, and the 60-day property window all demand attention. A few hours of professional advice can easily save five figures. Calculate your base cost carefully, keep records of all improvements and incidental costs, and always consider whether BADR or another relief applies before signing any agreement.