How Do I Handle Capital Gains Within a Limited Company

When a limited company sells an asset for more than it originally paid, the profit is known as a capital gain. Unlike individuals, who pay Capital Gains Tax, companies pay Corporation Tax on their chargeable gains. Handling capital gains correctly ensures your business pays the right amount of tax while taking advantage of any available reliefs or allowances. This article explains how capital gains work within a limited company, how they are calculated, and how to report them to HMRC.

What Are Capital Gains in a Limited Company

A capital gain arises when your company sells or disposes of an asset for more than its purchase price. Assets that can trigger capital gains include:

  • Land and buildings.

  • Shares and investments.

  • Trademarks or intellectual property.

  • Plant and machinery not covered by capital allowances.

For example, if your company bought equipment for £20,000 and later sold it for £30,000, the £10,000 profit would be treated as a chargeable gain.

Unlike self employed individuals who pay Capital Gains Tax, companies include capital gains within their Corporation Tax calculation.

How Capital Gains Are Taxed in a Company

Capital gains made by a limited company are subject to Corporation Tax, which is currently charged at:

  • 19 percent for profits under £50,000.

  • 25 percent for profits over £250,000.

  • A marginal rate for profits between £50,000 and £250,000.

Capital gains are combined with your company’s trading profits to determine the total taxable amount. This means gains from selling assets are treated as part of your overall profits for the year.

Calculating Capital Gains

To calculate the capital gain on an asset, follow these steps:

  1. Determine the sale proceeds: This is the amount your company receives when selling or disposing of the asset.

  2. Subtract the allowable cost: This includes the purchase price and any associated costs such as legal fees, improvements, or selling costs.

  3. Apply indexation allowance (if applicable): This adjusts the original cost for inflation for assets bought before 1 January 2018.

  4. Calculate the gain: The remaining figure is your chargeable gain, which is then added to your company’s profits for Corporation Tax.

Example:
Your company bought an office building in 2016 for £200,000. You sell it in 2024 for £300,000 and incur £10,000 in legal and agent fees.

  • Sale proceeds: £300,000

  • Total cost (purchase + fees): £210,000

  • Gain before indexation: £90,000

If the indexation allowance before 2018 is £10,000, the chargeable gain is £80,000. This is added to your company’s taxable profits and taxed under Corporation Tax.

Indexation Allowance

Companies can still claim indexation allowance for assets purchased before 1 January 2018. This relief adjusts the asset’s cost for inflation up to December 2017, reducing the taxable gain.

For assets purchased after January 2018, indexation is frozen, so no further adjustment is available. However, the allowance can still reduce tax for older assets retained from before that date.

Deductible and Non-Deductible Costs

When calculating capital gains, you can deduct certain costs related to the acquisition and disposal of the asset, such as:

  • Purchase price.

  • Legal and professional fees.

  • Stamp duty or other taxes paid on purchase.

  • Costs of improvement or enhancement.

  • Selling costs such as estate agent fees.

You cannot deduct normal business running expenses, interest payments, or maintenance costs unrelated to improving the asset’s value.

Losses on Capital Assets

If your company sells an asset for less than it paid, the loss is treated as a capital loss. Capital losses can be used to offset capital gains, either in the same accounting period or carried forward to future years.

For example, if your company made a gain of £40,000 on one asset and a loss of £15,000 on another, you would pay Corporation Tax on £25,000 of net gains.

You cannot use capital losses to offset trading income, but they can reduce future chargeable gains.

Special Rules for Shares and Investments

Capital gains on shares or other corporate investments follow the same principles but can qualify for additional reliefs.

If your company sells shares in another company, you may qualify for the Substantial Shareholding Exemption (SSE), which allows you to dispose of shares tax-free if:

  • Your company owned at least 10 percent of the other company’s shares.

  • You held the shares for at least 12 months.

  • Both companies were trading companies at the time of disposal.

The SSE can be a major tax advantage for companies that hold significant investments in other businesses.

Reporting Capital Gains

Capital gains are reported as part of your company’s annual Corporation Tax return (CT600). When submitting your return, you must include:

  • Details of all assets sold or disposed of.

  • The purchase and sale dates.

  • The costs and proceeds of each transaction.

  • Any reliefs or losses claimed.

You must file your company tax return within 12 months of the end of your accounting period and pay any tax due within 9 months and 1 day of that date.

Keeping accurate records of every transaction, including invoices, legal documents, and valuations, is essential in case HMRC requests evidence.

Capital Gains and Property Sales

If your limited company sells property, the gain is included in your Corporation Tax calculation. However, special rules apply if you sell residential property or overseas assets.

Residential property owned by companies is generally taxed at the full Corporation Tax rate, but additional charges such as the Annual Tax on Enveloped Dwellings (ATED) may also apply if the property is valued over £500,000 and not used for business purposes.

If your company owns and sells UK property, it must report the disposal to HMRC within 60 days of completion, even if no tax is due.

How to Minimise Capital Gains Tax in a Company

Although companies cannot use personal allowances like individuals, there are still ways to reduce capital gains tax liabilities:

  • Claim all eligible costs and fees to reduce the taxable gain.

  • Offset capital losses against future gains.

  • Make use of the Substantial Shareholding Exemption if selling shares.

  • Time asset disposals carefully to align with lower-profit years.

  • Invest in qualifying business assets that may provide future reliefs.

An accountant can help structure disposals efficiently and ensure all available reliefs are claimed correctly.

How an Accountant Can Help

Handling capital gains within a limited company can be complex, particularly when multiple assets or investments are involved. An accountant can:

  • Calculate accurate gains and losses.

  • Ensure all allowable deductions and reliefs are applied.

  • Advise on timing and strategy for selling assets.

  • Prepare and file Corporation Tax returns correctly.

  • Keep detailed records to support any HMRC review.

They can also identify long-term opportunities to manage tax liabilities and reinvest profits efficiently.

Summary

When a limited company sells an asset for a profit, it pays Corporation Tax on the gain rather than Capital Gains Tax. The gain is calculated by subtracting the cost of the asset and associated expenses from the sale proceeds. Companies can offset capital losses and may qualify for exemptions such as the Substantial Shareholding Exemption.

Proper planning, accurate records, and professional advice are key to managing capital gains effectively. Working with an accountant ensures your company remains compliant with HMRC, pays the correct amount of tax, and maximises any available reliefs.