Capital Gains Tax For The Self Employed, Sole Traders and Business Partnerships Explained

November 29, 2016 11:34 am Published by

capital gains tax for businessIf you’re planning on selling part or all of your business then you will need to be aware of

Capital Gains Tax (CGT). This is a tax paid on the profit made when selling a business as a whole or any business asset by those who are self-employed, sole traders or in a business partnership.

Find out the current rates of Capital Gains Tax and what it means when selling part or all of your business:

What Is Capital Gains Tax and When Is It Applicable?

Capital Gains Tax is a tax paid on any profits made when selling or ‘disposing’ of all or part of a business asset. This includes giving it away as a gift, swapping it for something else or getting compensation for it. CGT is paid by those who are self-employed, sole traders or in business partnerships. Other companies such as limited companies pay corporation tax instead when selling their assets.

Business assets you would be required to pay CGT on include:

  • Land and buildings
  • Fixtures and fittings
  • Plant and machinery
  • Shares
  • Registered trademarks and business reputation

What Is The Current Rate Of Capital Gains Tax?

There is no CGT to pay if your total gains (profits) are within the annual tax-free allowance of £11,100. Any earnings that exceed your tax free allowance to CGT, are taxed at a rate of 10% for basic-rate income tax payers, and 20% for payers of a higher tax rate.

How To Pay Capital Gains Tax

If you have CGT to pay, you can do so by sending a self-assessment tax return to HMRC, however, you must register for self-assessment before you can do this –  the deadline for submission every tax year is 31st October for paper returns and 31st January for electronic submissions. It’s very important these are completed on time as late submission can result in a penalty of between £100 and 100% of the amount of tax owing in the most serious cases.

You will only need to pay CGT tax if the amount you have earned when selling an asset is above your annual capital gains tax allowance, to calculate and pay your owed amount:

  1. Calculate the gain for each asset, do this for all assets you may be required to pay CGT on that you have disposed of in the tax year
  2. Add together the gains from all assets disposed of during tax year
  3. Deduct any allowable losses, these can include losses, disposing assets to family members or claiming for an asset that’s lost its value
  4. Report the details and pay any taxable gains that are above your annual allowance

If you’re in a business partnership, you will need to work out your share of each gain or loss separately, then the nominated partner must fill in form SA803.

Entrepreneurs Relief

If you’re an investor or founder of a business, you may benefit from Entrepreneurs Relief. Entrepreneurs Relief reduces the amount of CGT paid upon the sale of any qualifying business or business assets after 6th April 2008. This relief scheme is set up to encourage investment in start-ups and provides a rate of 10% on all gains on qualifying assets – this scheme only has an impact if you are a higher rate taxpayer who would otherwise pay 20%.

 You will qualify for Entrepreneurs Relief if you dispose of any of the following:

  • All or part of your business, including its assets after closing
  • Shares in a company where you have at least 5% shares and voting rights
  • Assets you lent to your business or personal company

There is no limit to how many times you can claim Entrepreneurs Relief, and up to £10 million can be claimed throughout your lifetime.

Other Capital Gains Tax Reliefs

In addition to entrepreneurs relief, there are other CGT reliefs that allow you to reduce or delay the amount of CGT paid:

  • Business Asset Rollover Relief – This allows business owners to delay paying CGT when qualifying types of assets are disposed of if they are replaced
  • Incorporation Relief – This delays CGT being paid when transferring a business to a company
  • Gift Hold-Over Relief – This relief applies if a business asset is being given away, transferring CGT paid to the person it was given to when they sell it

Need A Hand?

At First Call Financials, we know tax returns can be a struggle for sole traders and the self-employed, we have years of experience with business CGT tax and we submit self-assessment tax returns on behalf of many businesses and individuals. If you need a hand with your tax, give us a call on 0117 379 0810 to arrange a free consultation.


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This post was written by Steph Roffey

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