UK Individual Business Capital Gains Tax (CGT)


The Capital Gains Tax rate for individuals until June 2010 was generally 18%, although a 10% rate applied to the first GBP2m (over the taxpayer’s lifetime) in gains; claims could be made more than once up to the lifetime limit. Prior to the 2010-11 budget, the threshold was lower still, at GBP1m.

A ‘taper relief’ system previously in place (whereby the capital gains tax rate generally decreased according to the length of time that the asset had been held) ended in April 2008.

In Chancellor George Osborne's 'emergency' budget , delivered in June 2010, it was announced that, effective immediately, taxpayers paying the basic rate of income tax would continue to pay capital gains tax at the 18% rate, while higher rate taxpayers would pay at an increased rate of 28%. Entrepreneurial capital gains now benefit from the reduced 10% rate mentioned above on the first GBP5m.

A business or individual will be liable to pay Capital Gains Tax on the sale or disposal of assets. These ‘assets’ include property, shares, land & buildings, fixtures & fittings and goodwill (unless the buyer and seller jointly opt not to apply CGT on the latter, intangible, asset).

Capital Gains Tax is based on the total taxable gains for any tax year, excluding the first GBP10,100 of gains in the tax year 2010-2011 – this sum is free from tax (Personal Annual Exemption). The sale or transfer of a business is likely to incur Capital Gains Tax liability, including any gains a partner might make on their share of partnership assets. However, some relief may be allowable on the sale or disposable of business assets (for example Entrepreneurs’ Relief and Roll-Over Relief).

Where the business is incorporated, any capital gain will be considered part of the company’s profits and liability will be covered under the company’s Corporation Tax liability and the Corporation Tax rate will be applied.

For individuals who run their own business, whether a sole trader or as an unincorporated partnership, Capital Gains Tax is filed (and paid) via the self-assessment system. It will usually be calculated as part of the self-assessment tax return. The amount of Capital Gains Tax due will be the amount of the gain, less the Personal Annual Exemption amount (GBP10,100, as previously stated) and after the deduction of any other allowed relief. The timescales relating to filing of the self-assessment returns apply.

For private individuals, the sale of a main residence is normally exempt from Capital Gains Tax as is the first GBP6,000 of the sale of any private possessions, and gains from the sale of qualifying government and corporate bonds.

This article is an extract from Personal Business Tax Guide , dated 4th January 2011, for the latest version please click here .

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