Business asset disposal relief: tax you pay when you sell a business

Do I pay capital gains tax on a business sale?

If you're selling a business, there are extra reliefs available which might mean you can pay less capital gains tax (CGT) when you sell or give away your company.

Business asset disposal relief - known as entrepreneurs' relief until 2020 - could allow you to pay a lower CGT rate, charged at 10%, when selling a qualifying business.

• Do your 2023-24 tax return with the Which? tax calculator - tot up your bill and submit it directly to HMRC.

How does business asset disposal relief work?

The relief means you will be charged CGT at the basic rate (10%), on the first £1m of gains you make in your lifetime.

Given that the higher rate of capital gains is 20%, and selling a business could push even basic-rate taxpayers into paying the higher rate, you'll effectively be charged half of the usual rate.

The allowance applies at an individual level, so £1m is the maximum you can claim per person, rather than for each business you sell.

Any gains above the £1m threshold are taxed at the full rate - 20% if you've received taxable income or capital gains above £50,270 in 2024-25 (the same as in 2023-24), for most parts of the UK, and a lower £43,662 in Scotland (also the same in 2023-24).

Who can claim business asset disposal relief?

You can claim business asset disposal relief if:

• you are a sole trader or partner selling part or all of your business or its assets, or
• you control at least 5% of the company's net assets of which you are selling and are entitled to 5% of its distributable profits
• you sell assets from the above businesses within three years of closing down.

The relief doesn't apply to property portfolios held within a company structure. So, for example, if you're a portfolio landlord you couldn't claim.

There are some extra conditions. You can't, for example, buy or inherit a business and then immediately sell it. As of 6 April 2019, business asset disposal relief is only available to people who have been in qualifying circumstances for at least two years.

Similarly, if you held a property investment business, you couldn't change the purpose of that business and then sell to qualify for the relief. The only exception is furnished holiday letting businesses, which do qualify for the relief.

Find out more: use HMRC's helpsheets for more guidance

Are there any other conditions?

If you're only selling part of a business, then that part business must be capable enough of carrying on as a 'going concern' - accountants' speak for being commercially viable. So if you sold loss-making parts of the business, without the means to continue funding it, this wouldn't qualify.

If you're selling a business that has ceased trading, you must do so within three years of the company's operations ending, too.

The rules can be complex, so if you're not sure, it's worth taking advice from a qualified accountant. More details can also be found on HMRC's website.

How does CGT work without business asset disposal relief?

If you or your business don't qualify for business asset disposal relief, you'll need to calculate and pay your capital gains bill in the same way as when selling any other asset. You can find out more in our guide to capital gains tax rates and allowances.

You start by working out the gains you make on the sale of your business.

This means you take the sales price, and deduct what you paid for it, as well as any investments in the business, and any costs relating to buying or selling it.

Once you have that, you deduct your personal allowance. For 2024-25, you can earn up to £3,000 in capital gains free of tax, and couples can pool their allowances. This down from an individual allowance of £6,000 in 2023-24.

You'll pay CGT on any gain above this threshold - for non-property assets this is charged at 10% for basic-rate taxpayers, and 20% for higher-rate taxpayers.

Bear in mind that your capital gain will count when working out your tax bracket for the year, so even if you're a basic-rate taxpayer, a large capital gain can push you into paying the higher rate.