Do Companies Pay Capital Gains Tax or Corporation Tax on Assets

Introduction

Capital Gains Tax (CGT) is a tax paid by individuals, trusts, and some partnerships on the profit made when selling assets. However, companies are not subject to Capital Gains Tax. Instead, any gains they make are included as part of their overall profits and taxed under Corporation Tax.

The rules for companies are slightly different from those for individuals, with specific adjustments, allowances, and reliefs that can reduce the tax bill.

Do companies pay Capital Gains Tax

No. Companies do not pay Capital Gains Tax. Capital Gains Tax applies only to individuals, sole traders, and certain trusts.

When a company sells or disposes of an asset and makes a profit, that profit is treated as part of its chargeable gains. These are added to its other taxable income, such as trading profits or investment income, and the total is taxed under Corporation Tax.

So, while individuals calculate CGT separately, companies include asset gains in their Corporation Tax return.

What is a chargeable gain

A chargeable gain is the profit a company makes from selling or disposing of an asset that has increased in value. The gain is calculated by subtracting the asset’s allowable costs from the sale proceeds.

The formula looks like this:

Chargeable gain = Sale proceeds (Purchase cost + Allowable costs + Indexation allowance)

Allowable costs include:

The original purchase price of the asset.

Professional fees, such as legal or surveyor costs.

Improvement or enhancement costs (but not general maintenance).

Selling costs, such as estate agent or broker fees.

The resulting gain is then included in the company’s Corporation Tax calculation.

Indexation allowance

One key difference between individuals and companies is the indexation allowance.

Indexation allowance adjusts the original cost of an asset for inflation, reducing the amount of gain subject to tax. It applies to companies only.

However, the government froze the indexation allowance at December 2017, meaning companies can only apply inflation adjustments up to that date, even if they sell the asset later.

For example, if a company bought a property in 2010 and sold it in 2025, the inflation adjustment applies only up to December 2017.

Assets subject to Corporation Tax on chargeable gains

Companies may need to pay Corporation Tax on a wide range of assets, including:

Land and buildings.

Shares and investments.

Intellectual property, such as trademarks or patents.

Plant and machinery sold for more than their tax written-down value.

Goodwill or intangible business assets.

Each type of asset has its own rules for calculating allowable costs and reliefs.

How to calculate a company’s tax on a gain

Let’s take a simple example.

A company sells a commercial property for £500,000. It originally bought the property for £300,000 and paid £10,000 in professional and legal fees. The gain before tax is £190,000.

If the company has no other adjustments or reliefs, this gain is added to its other profits for the year and taxed under Corporation Tax at the current rate (for example, 25 percent for profits above £250,000).

Tax due:
£190,000 × 25 percent = £47,500.

If the company also had trading profits of £200,000, the total taxable profits would be £390,000, and Corporation Tax would apply to the combined figure.

Reliefs and exemptions available to companies

Companies can sometimes reduce or defer Corporation Tax on chargeable gains using specific reliefs, including:

1. Rollover relief

If a company sells a business asset and reinvests the proceeds in another qualifying asset within a specific time (usually three years), it can claim rollover relief. This defers the tax by reducing the cost of the new asset by the amount of the gain.

2. Substantial shareholding exemption (SSE)

If a company sells shares in another trading company that it has owned for at least 12 months and meets certain conditions, the gain may be exempt from Corporation Tax under the substantial shareholding exemption.

3. Group relief for gains

Companies in the same corporate group can transfer assets between them without triggering an immediate gain or loss. The tax is deferred until the asset is sold outside the group.

4. Loss relief

If a company makes a loss on the sale of an asset, the loss can usually be offset against chargeable gains in the same accounting period or carried forward to offset future gains.

5. Entrepreneurs’ or Business Asset Disposal Relief

This relief applies only to individuals, not companies. However, directors and shareholders may benefit personally when selling shares in their own business, depending on their circumstances.

Reporting and paying the tax

Companies must report chargeable gains through their Corporation Tax return (CT600). The gain is included in the “capital gains” section, along with supporting calculations.

Corporation Tax is usually due nine months and one day after the end of the accounting period in which the gain was made. Larger companies may need to pay in quarterly instalments.

Companies should retain documentation, such as purchase contracts, receipts, and valuation reports, to support any figures entered in their tax return.

What about non-UK companies

Since April 2020, non-UK companies that sell UK property or land are also subject to UK Corporation Tax on their gains. Previously, they paid Capital Gains Tax, but the rules were aligned so that all companies, whether UK-based or not, now pay Corporation Tax on property gains.

Common mistakes to avoid

Forgetting to include professional fees and improvement costs in the calculation.

Misapplying indexation allowance after December 2017.

Assuming Capital Gains Tax rules apply to companies.

Overlooking potential reliefs such as rollover or group relief.

Failing to declare chargeable gains in the company’s Corporation Tax return.

Accurate calculations and good record keeping are essential for compliance and to avoid overpaying tax.

Conclusion

Companies do not pay Capital Gains Tax when selling assets. Instead, they pay Corporation Tax on chargeable gains as part of their overall profits. By deducting allowable costs and claiming available reliefs, companies can reduce or defer the amount of tax payable.

Understanding how gains are calculated and what reliefs apply ensures your company remains compliant and tax-efficient when selling property, shares, or other business assets. For complex transactions, it is worth seeking professional tax advice to ensure you make the most of available reliefs and report everything correctly to HMRC.