Capital gains tax (incl. business reliefs)

BLP.14 — Capital Gains Tax (incl. business reliefs)

What CGT charges. Tax on the chargeable gain arising on the disposal of a chargeable asset by a chargeable person (TCGA 1992). UK-resident individuals are generally within CGT on worldwide gains; non-residents have a more limited charge, including direct and qualifying indirect disposals of UK land (s.1A). Disposal includes sale and gift: non-arm's-length disposals, including gifts and connected-person transactions, normally use market value (ss.17-18), subject to specific reliefs. Death is not a disposal by the deceased: the assets are generally acquired at their market value at death, not the deceased's historic cost (s.62).

Computing the gain.

• Proceeds (or deemed market value) minus allowable acquisition cost, incidental acquisition/disposal costs and qualifying enhancement expenditure = gain. Enhancement expenditure must still be reflected in the asset's state or nature at disposal; ordinary interest is not an allowable s.38 deduction.
• Apply relevant reliefs and deduct current-year allowable capital losses before the annual exempt amount. The annual exempt amount (AEA) is £3,000 for 2026/27. Then use brought-forward allowable losses only against the amount remaining above the AEA; unused losses carry forward. AEA cannot be carried forward. A loss must be notified to HMRC to be allowable (ss.1K, 16).
• Allocate AEA in the way most beneficial to the taxpayer, normally against gains otherwise taxed at the highest rate. AEA is not universal: it is lost for a year in which the individual makes a foreign gain claim, foreign income claim or foreign employment election (s.1K(6)).
• Apply the relevant rate to the remaining taxable gains; do not substitute the income-tax personal allowance for AEA.

Rates (2026/27). For individuals, the main CGT rates are 18% on gains within the unused basic-rate band and 24% on the excess; higher/additional-rate income taxpayers normally have no unused band. The higher residential-property rate fell from 28% to 24% on 6 April 2024 (Finance (No.2) Act 2024 s.6). Main rates on other gains rose to 18%/24% on 30 October 2024 (Finance Act 2025 s.7). Special relief rates are separate. Where BADR gains and other gains coexist, BADR gains use the unused basic-rate band first even though BADR has its own rate (TCGA ss.1H-1I).

Business Asset Disposal Relief (BADR).

• 18% for qualifying disposals on/after 6 April 2026, within a £1,000,000 lifetime limit, not an annual or per-disposal allowance. Excess gains are taxed at the applicable main rates (s.169N).
• Business/partnership: disposal of the whole or part of a business owned throughout the two years ending with disposal. A partnership interest is treated as an interest in the business. Merely selling an isolated asset while continuing the same business is not automatically a disposal of part of the business. Assets used when the business ceases can qualify if it was owned for the two years ending with cessation and the disposal follows within three years (s.169I). Shares/securities and other assets held as investments are excluded from relevant business assets (s.169L(4)).
• Company shares, ordinary route: throughout the two years ending with disposal, the company must be the individual's personal company and a trading company or holding company of a trading group; the individual must be an officer or employee of it or a group company. Trading status excludes substantial non-trading activities. There is also a qualifying cessation route with a three-year disposal window (ss.169I, 165A).
• Personal-company test: at least 5% of ordinary share capital and, by virtue of that holding, 5% of voting rights, plus either 5% of distributable profits AND assets available to equity holders on winding up, or 5% of proceeds on a hypothetical sale of the whole ordinary share capital (s.169S(3)). Shareholding and employment alone are insufficient.
• Exceptions are not automatic: qualifying EMI shares have a separate route without the ordinary personal-company 5% requirement; the two-year option-grant, trading and employment conditions still matter (s.169I(7A)-(7R)). A qualifying commercial cash share issue diluting a holding below the personal-company threshold can support a deemed-disposal election to protect accrued relief, with a further election to defer that gain (ss.169SC-169SD).
• Claim deadline: the first anniversary of 31 January following the tax year of disposal; a 2026/27 disposal therefore normally requires the claim by 31 January 2029 (s.169M).

Incorporation relief: transfer to a company (s.162).

• A person who is not a company transfers a business as a going concern, with all its assets (cash may be excluded), wholly or partly in exchange for shares issued by the company. Relief reduces the net chargeable gains by the share-consideration fraction, capped at the cost of those shares, and reduces their base cost correspondingly. Cash or other non-share consideration can leave an immediate charge: this is deferral, not exemption.
• For business transfers on/after 6 April 2026, a claim is required by the first anniversary of 31 January following the transfer tax year: normally 31 January 2029 for 2026/27. The old s.162A opt-out provision is omitted for these transfers (Finance Act 2026 s.39). Do not teach automatic relief for a current transfer.
• Later BADR share disposal: where shares were issued to the individual wholly or partly in exchange for a going-concern transfer of the business with all its assets (cash may be excluded), and any of those shares form part of the shares disposed of, the conditions in s.169I(6)(a)-(b) (personal trading company; officer/employee) are treated as met for any period ending immediately before the transfer throughout which the individual owned the business (s.169I(7ZA)-(7ZB)). This does not depend on a s.162 claim, does not remove the conditions for the period after incorporation, and does not make every later share disposal qualify.

Rollover relief: replacement business assets (ss.152-155).

• On a claim, qualifying disposal proceeds reinvested in qualifying replacement assets can defer the gain by reducing the replacement asset's base cost. The old asset must have been used only for the trade throughout ownership, and the new asset must be acquired for and taken into trade use; statutory apportionment can allow partial relief for mixed or partial-period use. Successive or simultaneous trades of the same person can be treated as one trade.
• Both assets must be in the statutory classes. Examples include land/buildings occupied and used for the trade, fixed plant or machinery, and goodwill; not every business asset qualifies. Acquisition or an unconditional acquisition contract must normally fall from 12 months before to three years after disposal; HMRC can allow an earlier or later time.
• Partial reinvestment: the gain immediately chargeable is the lower of the gain and the proceeds not reinvested; the balance can be deferred. Reinvesting only the gain, rather than the proceeds, may therefore leave tax due.
• Depreciating replacement: the gain is frozen rather than deducted from the replacement's base cost. It normally accrues on the earliest of disposal, cessation of trade use or ten years after acquisition. A further qualifying acquisition can permit rollover into a non-depreciating asset before that trigger (s.154(4)-(6)). A depreciating asset is a wasting asset or one that will become wasting within ten years: wasting generally means a predictable life not exceeding 50 years, with plant/machinery deemed wasting and freehold land excluded (ss.44, 154(7)).

Holdover/gift relief (s.165).

• A gift is normally a market-value disposal, but qualifying business assets can receive relief on a joint donor/donee claim. Where the transferee is trustees of a settlement, the transferor alone makes the claim. s.165 does not apply where s.260 relief applies, or would apply on a claim; a gift immediately chargeable to IHT, such as most lifetime gifts into a relevant-property trust, is held over under s.260 instead (s.165(3)(d)). Relief reduces both the donor's gain and the donee's acquisition cost by the held-over gain: deferral, not exemption.
• Qualifying assets include assets used in the donor's trade or a qualifying personal-company/group trade, and shares/securities in a trading company or holding company of a trading group that are unlisted or in the donor's personal company. For this relief, the personal-company definition is at least 5% voting rights, not BADR's fuller test (s.165(8)).
• If actual consideration exceeds allowable cost, that excess limits how much gain can be held over. Non-business use and company non-business assets can also restrict relief. Residence, company-transferee and settlor-interested-trust restrictions require checking; there are specific UK-land rules for non-residents (ss.165-167A, 169B-169C and Sch.7). If the donee ceases to be UK resident within six years after the end of the tax year of the gift, while still owning the asset, the held-over gain is deemed to accrue to the donee immediately before departure (s.168): do not say the gain can crystallise only on a later sale.

Spouse/civil-partner transfers (s.58).

• No gain/no loss, not a market-value rebasing, applies while spouses/civil partners are living together.
• After they cease living together, the ordinary window ends on the earlier of the end of the third tax year after the tax year of separation and the relevant divorce/dissolution/annulment/judicial-separation court order. They must still be spouses/civil partners for this route.
• A separate route, with no three-tax-year limit, applies where the spouses/civil partners have ceased, or are in the process of ceasing, to be married or civil partners and the transfer is made under an agreement or court order within s.225B(2)(a)-(b) (s.58(1D)). Do not assume any informal gift to a former spouse qualifies. Trading-stock transfers and deathbed gifts are excluded by s.58(2).

Private residence relief (ss.222-224). An only/main home is not automatically wholly exempt. Relief depends on qualifying occupation and permitted garden/grounds (normally 0.5 hectare including the house, or a larger area needed for reasonable enjoyment). Full relief normally requires qualifying occupation throughout ownership, allowing the final nine months; otherwise time apportionment and qualifying deemed-occupation periods matter. The final-period allowance can be 36 months where the disability/care-home and other-home conditions in s.225E are met. Exclusive business use and acquisition to realise a disposal gain can restrict relief. See PP.10 for the property-tax context; detailed absence, letting and reporting rules still require checking.

Common traps.

• BADR is a £1m lifetime cap at 18%, not an exemption. It is different from IHT Business Property Relief: see BLP.17 for that relief's separate conditions and allowance rules.
• Rollover concerns reinvestment by the disposer; gift holdover reduces the recipient's base cost. Neither is an outright exemption.
• Current-year losses precede AEA; brought-forward losses must not waste it. Check AEA entitlement, not just its £3,000 amount.
• Death itself is not a CGT disposal by the deceased; a lifetime gift normally is. Later disposals by personal representatives or beneficiaries are separate events.
• Check unused basic-rate band, special reliefs and disposal date before choosing a rate.

Anti-avoidance: the general anti-abuse rule

• The GAAR (FA 2013 Part 5) applies to several taxes, including income tax, capital gains tax and corporation tax (s.206(3)); VAT is not on that list. Arrangements are tax arrangements if, having regard to all the circumstances, it would be reasonable to conclude that obtaining a tax advantage was the main purpose, or one of the main purposes, of the arrangements (s.207(1)). That alone does not make them abusive.
• The separate abuse test asks whether entering into or carrying out the arrangements cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances (s.207(2)). These include whether the results are consistent with the provisions' principles and policy objectives, whether the means involve contrived or abnormal steps, and whether the arrangements are intended to exploit shortcomings in the provisions. Where the arrangements form part of wider arrangements, regard must also be had to those (s.207(3)). A tax saving does not by itself satisfy this test; accordance with established practice that HMRC had accepted may indicate that arrangements are not abusive (s.207(5)).
• Abusive tax advantages are counteracted by just and reasonable adjustments, subject to the statutory procedure (s.209). In court or tribunal proceedings, HMRC must show both that the arrangements are abusive and that its adjustments are just and reasonable; the court or tribunal must take into account HMRC's GAAR guidance approved by the GAAR Advisory Panel and any relevant Panel opinion (s.211). Specific anti-avoidance provisions must also be checked for the particular transaction; this outline does not replace their conditions.

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