Tax on business asset disposal

When you sell business assets in the UK, the tax bill isn't a one-size-fits-all. Your business structure determines whether you're paying Capital Gains Tax or Corporation Tax, what rate applies and which reliefs might be available. Getting this right can save you thousands.

For sole traders, any profit you make when selling business assets is taxed through Capital Gains Tax. This applies whether you're selling equipment, property, goodwill or intellectual property.

You get an annual exemption of £3,000 per tax year, but any capital gain above this is taxable as part of your Self Assessment return. The rate depends on your income tax band. For basic rate taxpayers, gains are taxed at 18%, while higher or additional rate taxpayers are taxed at 24%. Capital losses can be offset against gains to reduce your tax liability.

When a partnership disposes of business assets, the partnership itself doesn't pay tax. Instead the chargeable gain is allocated to each partner according to their profit sharing arrangement. Each partner then pays Capital Gains Tax on their share.

The same annual exemption (£3,000) and rates apply as for sole traders: basic rate taxpayers pay 18% on gains above the exemption, higher rate taxpayers pay 24%. The partnership calculates the total gain and allocates it to partners. Each partner reports their share on their individual Self Assessment return. Partners can offset any personal capital losses against their share of the gain.

Limited companies don’t pay Capital Gains Tax on the profit from selling business assets. Instead, the gain is taxed through Corporation Tax alongside the company's other profits.

The corporation tax rates for 2026 are: 

A key difference from the previous business structures is that there's no annual exemption. The company pays tax on the entire gain. The gain is calculated as sale proceeds minus the original cost and any allowable costs such as legal fees or improvements.

Holding companies that own operating subsidiaries also pay Corporation Tax on any gains from disposing of subsidiary shares or group assets. The calculation follows the same corporation tax rates as other limited companies.

Trusts are treated differently depending on their type. Trustees pay Capital Gains Tax on gains from disposing of trust assets.

Trustees get an annual exemption of £1,500 per tax year, significantly lower than the £3,000 available to individuals. Trustees are treated as higher rate taxpayers for CGT purposes, meaning gains above the exemption are taxed at 24%. Trustees report gains on a separate tax return. Beneficiaries don’t pay the tax directly on trust disposals.

This is the most valuable relief available for sole traders or partnerships selling assets (or their entire business) or individuals selling shares in a Ltd Company you own or hold a qualifying stake in. It applies a flat Capital Gains Tax rate to qualifying gains, up to a £1 million lifetime limit. From April 2026, the rate is 18% (previously 14% for 2025/26 and 10% before that).

The eligibility conditions are strict but clear. You must have owned the business or held a qualifying stake for at least two years immediately before the disposal. Beyond that, the rules differ by structure.

Sole traders: You must have been actively involved in operating the business for at least two years.

Partnerships: You must have been a partner (with active involvement) for at least two years.

Company shareholders: You must hold at least 5% of the ordinary share capital and 5% of voting rights, and be an officer or employee of the company. This two-year requirement must be met immediately before disposal.

Trustees: Eligibility depends on the trust type and nature of the asset. Some trusts disposing of business assets or shares in trading companies may qualify, but the conditions are more restrictive.

On a £1 million gain, the difference between paying 24% and 18% is £60,000. On a £500,000 gain, the saving is £30,000. For business owners planning an exit, this relief can materially improve the after-tax proceeds. However, you should seek further advice from your accountant as there are restrictions (pre and post-sale) on this relief.

If you gift business assets or shares in a trading company to someone, or transfer them at below market value, holdover relief can defer the Capital Gains Tax. The gain is not charged immediately to you. Instead, it's rolled forward and reduces the recipient's cost base when they eventually sell the asset.

Holdover relief is commonly used in family business succession, allowing owners to pass on businesses or shares to children without triggering an immediate tax bill. The incoming owner inherits a lower cost base but can benefit from their own reliefs when they eventually sell. 

If a company reinvests the proceeds from an asset sale into new qualifying business assets within a specific timeframe (usually three years), Rollover Relief can defer the corporation tax on the gain. The gain is deducted from the cost base of the new asset rather than being charged immediately.

Rollover Relief is particularly useful when companies are upgrading equipment, relocating and purchasing new premises, or restructuring assets as part of business operations. The relief doesn't eliminate the tax, it defers it. When the new asset is eventually sold, the deferred gain becomes part of the calculation at that time.

Important Note: Rollover Relief is only available to companies (not sole traders or partnerships) and only applies to certain types of assets such as tangible fixed assets used in the business. Cash and investment property typically do not qualify.

This relief applies to holding companies or substantial shareholders disposing of shares in another company. If a company or individual has held at least a 10% stake in another company for at least 12 months of a two-year period, the entire gain on disposal may be exempt from tax.

This is a powerful tool for group restructuring and is particularly relevant for holding companies managing multiple operating subsidiaries. Unlike other reliefs which reduce the rate, Substantial Shareholding Exemption can eliminate the entire tax bill on qualifying disposals.

Sarah operates as a self-employed joiner and has owned her business for seven years. She decides to sell her workshop and equipment for £250,000. Her original cost was £80,000. The gain is £170,000.

After using her £3,000 annual exemption, her taxable gain is £167,000. Sarah is a higher rate taxpayer.

Without any extra relief, she’d pay CGT at 24% = £40,080.

Since she qualifies for Business Asset Disposal Relief, she only needs to pay the 18% rate (up to her £1 million lifetime limit). Instead of paying £40,080, her tax bill becomes £30,060.

The savings = £10,020

Two equal partners own a digital marketing agency and have been partners for five years. They sell the business premises for £600,000. The original cost was £350,000. The gain is £250,000.

Each partner's share of the gain is £125,000. After their individual £3,000 annual exemption, each has a taxable gain of £122,000. Both are higher rate taxpayers.

Without relief, each would pay CGT at 24% = £29,280 each, or £58,560 combined.

Since they qualify for Business Asset Disposal Relief, each pays the 18% CGT rate instead = £21,960 each.

The savings: £7,320 per partner, or £14,640 between them

ABC Ltd buys a warehouse for £400,000. After five years it sells for £600,000. The gain is £200,000.

The company's total taxable profits for the year are £300,000 (including the £200,000 gain from the asset sale). Using the 2026 corporation tax rates, the effective rate on the gain is approximately 24%.

Without any relief, the corporation tax bill is around £72,000 on the £200,000 gain.

If the company immediately reinvested the £600,000 into new qualifying equipment or premises, Rollover Relief could defer the tax. Instead of paying £72,000, the company would deduct the £200,000 gain from the cost base of the new asset, deferring the tax until that asset is eventually sold.

The benefit: Tax deferred, preserving cash for reinvestment. (careful planning is required where corporation tax rate is increasing).

A discretionary trust owns 100% of the shares in an unquoted trading company. The shares were purchased for £150,000 and sold for £500,000. The gain is £350,000.

The trust is a higher rate taxpayer for CGT purposes. After the £1,500 exemption, the taxable gain is £348,500.

Without relief, CGT is 24% = £83,640.

If the trust qualifies for Business Asset Disposal Relief (having held shares for at least two years and the company being a trading company), the CGT rate becomes 18% = £62,730.

The saving: £20,910.

XYZ Holdings Ltd owns 15% of the shares in an unquoted operating company and has held that stake for six years. The shares were purchased for £500,000 and sold for £1,200,000. The gain is £700,000.

The holding company's total taxable profits for the year are £900,000. Using the 2026 corporation tax rates, the effective corporation tax rate on the gain is approximately 24%.

Without relief, the corporation tax bill would be around £168,000 on the £700,000 gain.

Since XYZ Holdings qualifies for Substantial Shareholding Exemption, the entire gain is exempt from corporation tax.

The saving: £168,000.

The difference between paying £30,000 and £72,000 on the same asset sale often comes down to business structure and relief eligibility. For business owners planning an exit or a significant asset disposal, that gap can swing from thousands to hundreds of thousands depending on scale.

This is where working with the right advisor matters. Getting the structure right, understanding which reliefs apply to your situation and organising the right timing of a disposal is what can separate a good asset sale from a great one (or even a bad one).