Capital Gains Tax

Business Asset Disposal Relief (BADR) applies to the sale of a business, shares in a trading company, or an individual’s interest in a trading partnership. When this relief is available, a reduced 18% rate (2026-27) of Capital Gains Tax (CGT) applies. 

To qualify for BADR, certain conditions must be met:

Sale of a Business or Business Closure:

• You must be a sole trader or business partner; and
• You must have owned the business for at least 2 years leading up to the sale or closure.
• You must dispose of your business assets within 3 years to qualify.

Sale of Shares or Securities:

Both of the following must apply for at least 2 years up to the date you sell your shares:

• You must be an employee or office holder of the company (or a company within the same group).
• The company’s main activities must involve trading, not non-trading activities like investment, or it must be the holding company of a trading group.

Additional rules can apply if the shares are from an Enterprise Management Incentive (EMI).

Currently, you can claim a total of £1 million in BADR over your lifetime, allowing you to qualify for the relief multiple times. The lifetime limit may be higher if you sold assets before 11 March 2020. Investors' Relief CGT rates mirror those for BADR and have also been set at 18% since 6 April 2026.

Many homeowners assume that if a property has been their main residence at some point, any gain made on sale will automatically be free from Capital Gains Tax (CGT). Whilst in many cases, this is correct there are exceptions. For example, periods spent living away from your home can sometimes reduce the amount of Private Residence Relief available.

The good news is that some periods always qualify for relief. In most cases, the final 9 months of ownership are automatically exempt, provided the property was your only or main residence at some stage. There can also be relief for up to the first two years of ownership where a property was being built, renovated or where you were unable to move in immediately.

Additional relief may also be available where you temporarily lived elsewhere. Absences of up to three years for any reason can qualify, while periods of up to four years may qualify where you had to work elsewhere in the UK. Time spent working overseas can also qualify for relief in full. Normally, you must have lived in the property before and after the absence unless your work prevented your return.

Where more than one property is owned, the rules become more complicated as generally only one property can qualify as your main residence at any one time. Married couples and civil partners are also normally restricted to one main residence between them.

These rules can have a significant impact on the amount of CGT payable when a property is sold, particularly where second homes or lengthy absences are involved.

How capital gains are linked with Income Tax is important to understand as your overall income position affects the Capital Gains Tax (CGT) rate you pay.

CGT interacts directly with your Income Tax band. Your taxable income is first calculated after deducting your Personal Allowance and any Income Tax reliefs. Your chargeable capital gains are then added on top, after subtracting the annual tax-free CGT allowance (2026-27: £3,000). This determines whether your gains fall within the basic or higher rate Income Tax band, which determines the CGT rate that applies.

For individuals in the higher or additional rate Income Tax band, capital gains are usually taxed at 24% from 6 April 2026. Basic rate taxpayers will initially pay CGT at a rate of 18% but this increases to 24% for any amount of chargeable gain above the basic Income Tax band.

Gains on certain assets are treated differently. Gains on business assets may qualify for Business Asset Disposal Relief at a rate of 18% and most people do not pay CGT when selling their main home. Trustees and personal representatives typically pay a flat 24% CGT rate.

Transfers of assets between spouses or civil partners are usually free from Capital Gains Tax (CGT). When you give or sell an asset to your spouse or civil partner, it is treated as a disposal for CGT purposes, but on a ‘no gain, no loss’ basis.

This means no immediate tax is due, and the receiving spouse effectively takes over the original cost and ownership history of the asset. When the asset is ultimately sold, any gain is calculated based on the difference between the original purchase cost and the eventual sale proceeds, not the value at the date of transfer. Records of the original cost should therefore be retained.

There are some important exceptions. The no gain/no loss treatment does not apply if you were separated and did not live together at any point during the tax year of the transfer. It also does not apply where assets are transferred as trading stock for the recipient’s business to sell on. In these cases, the transfer is treated as taking place at market value, and a CGT liability may arise for the person making the transfer.

Similar rules apply to gifts to charity. Generally, no CGT is due on outright gifts. However, if an asset is sold to a charity for more than its original cost but less than market value, a gain may arise based on the actual sale proceeds.

For most capital gains realised in the 2026–27 tax year, Capital Gains Tax (CGT) is reported and paid by 31 January 2028 via the self-assessment system. This applies to gains on assets such as shares, investments and commercial property.

However, UK residential property is an important exception. Where a residential property is sold and the gain is not fully covered by Private Residence Relief, the capital gain must be reported and paid within 60 days of completion. This rule applies to disposals completed on or after 27 October 2021.

The 60-day deadline mainly applies to rental properties, second homes or properties only partly used as a main residence. If the property is jointly owned, each owner must report and pay tax on their share of the gain separately.

To calculate the gain, you will need details such as purchase and sale dates, acquisition cost, legal and professional fees, and qualifying improvement expenditure. Selling costs, including estate agent and legal fees, can also be deducted. Gathering this information in a timely manner is important given the tight 60-day deadline.

If you have disposed of, or are planning to dispose of, an asset that may give rise to a gain, we would be happy to help you calculate taxable gains, ensure that the filing and payment deadlines are met and avoid unnecessary interest or penalties.

When a sole trader or partnership transfers a business to a company, a chargeable gain may arise. This is calculated by reference to the market value of the business assets at the date of incorporation (including goodwill), compared with their original base cost. The resulting gain would ordinarily be subject to Capital Gains Tax.

In many cases, however, the transfer is structured to qualify for Incorporation Relief. Broadly, this requires that the whole business is transferred as a going concern, together with all of its assets (other than cash), in exchange wholly or partly for shares issued by the company.

Where the conditions are satisfied, Incorporation Relief applies automatically and no formal claim is required. The effect of the relief is to defer the gain by reducing the base cost of the shares received, thereby postponing the tax charge until those shares are subsequently disposed of.

A taxpayer may elect for the relief not to apply. This election must be made in writing by 31 January, two years after the end of the tax year in which the incorporation takes place. For example, for a transfer in the current 2026–27 tax year, the election deadline is 31 January 2030. This deadline is reduced by one year if the shares are disposed of in the tax year following that of incorporation.

Private Residence Relief (PRR) is a valuable Capital Gains Tax relief that can eliminate the tax due when you sell your home. In simple terms, it applies to periods when a property has been your only or main residence. However, if you spend time living away from home, the position becomes less clear, and CGT may well be due.

The starting point is that you will usually get full relief for the time you actually lived in the property, plus some additional “deemed occupation” periods. Most notably, the final 9 months of ownership always qualify for relief, provided the property was your main home at some stage.

You may also qualify for relief during absences when you live away from your home. Broadly, this includes up to three years away for any reason, up to four years if working elsewhere in the UK, and unlimited periods if working abroad. In most cases, you must have lived in the property before and after the absence, unless work prevents your return.

There are also special rules for the first two years of ownership if the property was being built or renovated or you could not sell your old home.

Where you own more than one property, only one can qualify as your main residence at any given time. Married couples and those in a civil partnership are restricted to a single main home between them.

It is important to carefully keep track of time living away from your home in order to correctly be able to calculate if any how much CGT is due when your home is sold.

The tax rate for Business Asset Disposal Relief (BADR) will increase to 18% (from 14%) on 6 April 2026. BADR offers a reduced Capital Gains Tax (CGT) rate on qualifying disposals such as the sale of a business, shares in a trading company or an individual’s stake in a trading partnership.

These rate increases are accompanied by new anti-forestalling rules designed to prevent individuals from securing the lower BADR rate by using early contracts. Where an unconditional contract is entered into during the 2025-26 tax year but completes on or after 6 April 2026, the disposal will normally be treated as occurring at completion, meaning the higher 18% rate applies. 

However, the legislation allows for “excluded contracts” where the contract was not entered into to secure a tax advantage and, where parties are connected, was entered into wholly for commercial reasons. Where total gains under excluded contracts do not exceed £100,000, the anti-forestalling does not apply.

The lifetime BADR limit remains £1 million meaning individuals can use the relief multiple times, provided their total gains from qualifying disposals do not exceed this threshold. However, the higher CGT rates obviously reduce the tax advantage available. Investors’ Relief CGT rates are currently in line with those for BADR and will also increase to 18% in April 2026.

Rolling over capital gains can be an effective way for business owners to defer Capital Gains Tax (CGT) when selling or disposing of certain business assets. This is done using Business Asset Rollover Relief which allows taxpayers to postpone the tax on gains if all or part of the proceeds are reinvested in new business assets. Essentially, the gain on the old asset is “rolled over” into the cost of the new asset, with any CGT liability deferred until the new asset is eventually sold.

If only a portion of the sale proceeds is used to purchase new assets, a partial rollover claim can be made. Provisional rollover relief is also available for cases where new assets are intended to be acquired but have not yet been purchased. Additionally, relief may apply when proceeds are used to improve existing business assets. The total relief depends on the amount reinvested.

To qualify, assets must generally be purchased within three years of selling the old ones (or up to one year prior), and both the old and new assets must be used in the business. The business must be trading at the time of sale and reinvestment. Claims must be submitted within four years of the end of the tax year in which the new asset was acquired (or the old asset sold, if later). HMRC may, in certain circumstances, allow extensions to these time limits.

You may have to pay Capital Gains Tax (CGT) tax when you sell or dispose of a property that is not your main home. This includes buy-to-let properties, business premises, land and inherited property.

Your gain is broadly the difference between what you paid for the property and what you sell it for. In some cases such as where the property was gifted or sold below market price you must use market value instead. If your total gains exceed the annual exemption, CGT will be payable.

For UK residential property, CGT is charged at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. You can reduce your gain by deducting allowable costs, such as legal fees, estate agent fees and the cost of capital improvements (but not routine maintenance).

You do not usually pay CGT on transfers to a spouse or civil partner, or to a charity. Special rules also apply to jointly owned property, overseas property and disposals from estates. If CGT is due on the sale of UK residential property, you must report and pay it within 60 days of completion. Keeping accurate records and reviewing your position early can help avoid unexpected liabilities and ensure you claim all available reliefs.