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In the UK, business asset tax relief can help you reduce your tax liabilities, when selling qualifying assets. This tax relief is aimed at encouraging entrepreneurship, investment, and innovation. Here are some ways to get tax relief when you sell business asset.

Business Asset Disposal Relief

As part of the Business Asset Disposal Relief or previously known as Entrepreneurs’ Relief, entrepreneurs are encouraged to become entrepreneurs, to reward their hard work and investments, and to promote business growth and innovation. The relief offers eligible individuals the opportunity to take advantage of a 10% reduced capital gains tax rate when disposing qualifying business assets, this includes shares in trading companies, business assets, and certain types of business-related property. The 10% reduction applies to a lifetime limit of £1 million, and any gains exceeding the lifetime limit are taxed at the standard rate.

Qualifying Condition

Based on the business asset that is disposed, following qualifying conditions must be satisfied to qualify for the relief claim.

If you are selling whole or part of business, to qualify for Business Asset Disposal Relief, individuals must have been:
1. a sole trader or business partner, and
2. have owned the business for at least 2 years.
If you are selling shares and shares are from an Enterprise Management Incentive (EMI), to qualify for the relief, individuals must have been:
1. an employee or office holder of the company,
2. have bought the shares after 5 April 2013,
3. have been given the option to buy them at least 2 years before selling them, and
4. the company’s main activities are in trading.
If you are selling shares and shares are not from an EMI (which means business must be personal company), to qualify for the relief, individuals must have been:
1. an employee or office holder of the company,
2. have 5% of both shares and voting,
3. the company’s main activities are in trading, and
4. either, entitled to at least 5% of profits that are available for distribution and assets on winding up the company, or disposal proceeds if the company is sold.
If the company stops being a trading company, you can still qualify for relief if you sell your shares within 3 years.
If you’re selling assets you lent to the business, to qualify for the relief, individuals must have:
1. sold at least 5% of your part of a business partnership or your shares in a personal company, and
2. owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares – or the date the business closed.

What tax you will pay on gains?

Category	Tax Rate
Gains eligible for Business Asset Disposal Relief	10%
Gains not eligible for Business Asset Disposal Relief	Pay according to what income tax rate you pay

Gains not eligible for Business Asset Disposal Relief:

Income Tax Band	Residential Property	Other Chargeable Assets
Basic Rate	18%	10%
Higher Rate	28%	20%

Business Asset Rollover Relief

In the UK, Business Asset Rollover Relief provides business owners with the option to defer Capital Gains Tax when disposing of certain business assets and reinvesting the proceeds into new qualifying assets. The relief allows businesses to restructure, acquire new assets, or reinvest in their enterprises with greater flexibility and tax advantages. By deferring CGT liabilities, businesses can preserve cash flow and reinvest capital into growth opportunities while deferring CGT liabilities. The assets that must be disposed of and acquired in order to qualify for Relief are those that are qualifying business assets. These include, for example, land, buildings, machinery, shares in qualifying trading companies, and other assets which are part of a business entity.

In the event of selling the original asset, CGT liability on the gain will be deferred until a later date when the new asset is sold. Essentially, the deferred gain is rolled over to the cost of a new asset, which reduces CGT liability when it is sold.

To qualify for Business Asset Rollover Relief, so that you can defer from CGT, you must:

reinvest into new qualifying assets either within 3 years after the disposal of the asset or 1 year before the disposal,
your business must be trading when you sell the old assets and buy the new ones, and
you must use the old and new assets in your business.

You will get partial relief when you have part of the proceeds reinvesting in your business after selling old assets, or if you have used part of the proceeds to purchase depreciating assets (fixed plant, machinery, or equipment that is expected to last less than 60 years), you are eligible for partial relief.

To claim for the relief, fill in help sheet HS290 Business asset roll-over relief and include it with your Self-Assessment tax return. You can claim tax relief within the 4 years of the end of tax year when you bought or sold the asset.

Incorporation Relief

An individual or partnership may be able to benefit from Incorporation Relief when they transfer their business to a company in exchange for shares without having to pay immediate capital gains tax. The company assets can include goods, equipment, and other tangible and intangible assets. Upon receiving the business assets, the company takes on the assets and liabilities transferred, and the transferor becomes a shareholder in the company. This relief allows a business owner (transferor) to defer payment of Capital Gains Tax (CGT) on the disposal of business assets when they incorporate their business into a company structure. The Capital Gain Tax liability is deferred until the shares received in exchange for the transfer are disposed of in the future. When a company transfers assets, its cost is calculated based on the market value of those assets at the time of the transfer. Incorporation Relief is automatically granted, no need to claim for it.

To qualify for Incorporation Relief, one must meet the following conditions,

be a sole trader or business partnership, and
transfer all the assets of the business (except cash) to the company in exchange for shares.

Under Incorporation Relief, you will pay no tax until you sell all your assets in exchange of shares. However, you must pay Capital Gains Tax on the cash you have received while transferring your business.

What amount of CGT you will pay when you sell your shares in the future?

Capital Gain Tax = Market value of the shares you received – Gain made when business was sold in exchange of shares

Example:

You sold your business in exchange for shares worth of £50,000. You made a gain of £25,000 during the process. Later when you sell your shares, on what amount you will pay the CGT?

CGT = £50,000 – £25,000 = £25,000

Your business is worth of £50,000 and sold you business in exchange for 80% shares (i.e. £40,000) and 20% cash (i.e. £10,000). You made a gain of £25,000 during the process. How will you pay your CGT?

You need to pay tax on the 20% of the gain in your next tax return as you have sold your company in exchange of cash, i.e., 20% of £25,000 = £5,000
You will pay CGT on the remaining 80% of gain when you will sell these shares, i.e., 80% of £25,000 = £20,000.

Capital Gain Tax on Property

Capital Gain tax on a property is the tax you pay on the profit you have made by selling or disposing a property that is not your home property, i.e.,

Second homes or holiday homes
Buy-to-let properties.
Business premises
Inherited property
Rental properties
Any property that is not your primary residence

You pay tax when there’s a profit earned by selling a property and if this profit is above the exemption limit, i.e.,

Tax Year	Exemption on CGT gain	CGT Exemption on Trusts
2023-24	£6,000	£3,000
2024-25	£3,000	£1,500

Capital Gain = Selling Price – Cost Price – Acquisition cost – Improvement Expenses – Capital Losses (this year or carried forward losses of the past year).

You do not pay CGT if the property is:

Transferred between spouses or civil partners,
Given to a charity,
Principal Private Residence Relief (PPR) for properties that have been your main home,
Letting Relief for properties that were once your main home and have been let out, or
Entrepreneurs’ Relief for qualifying business assets that include shares in a trading company or business assets.

You must report to HMRC within 60 days on the sale made on a UK property.

Businesses that are in property purchase and sell

You do not pay Capital Gain tax if the purpose of your business is to buy and sell property. Instead, you pay income tax (if you are sole trader or partner) or corporation tax (if you are a limited company).

When you sell a property overseas

You must pay CGT depending on the residential status of the person.

The person who is resident of UK will pay CGT if they dispose of an overseas property.
The person who is resident of UK, but permanent home is in another country, will pay CGT if the gain is more than £2,000 and they transfer the amount to UK bank.
The person who is not the resident of UK will pay CGT if they are returning to UK within 5 years of leaving.

When you sell a property in the UK

You must pay CGT depending on the residential status and qualifying criteria of the person.

The person who is not the resident of UK will pay:
1. No CGT for any tax year you or your partner have lived in the UK property for more than 90 days and had nominated the property as home. Though you are not paying ang capital gain tax, you must report to HMRC about the transfer of property within 60 days of ownership transfer.
2. You will pay CGT for the years you have used the property as let out (not as a lodger), or for business purpose, or grounds of the property is more than 5,000 square meters in total.

Capital Gain Tax on Possessions

You need to pay tax if you make gains of £6,000 or more by selling personal possessions like, jewellery, paintings, antiques, coins and stamps, and many other. However, you do not pay pay CGT on gifts received from spouse or partner, things that have limited lifespan (less than 50 years e.g., clocks), on personal car (not used for business purposes).

Calculate how much is the gain on Personal Possessions

Capital gain is the difference between what you have paid for the item and at what you have sold it. However, in certain cases, you need to use market value of the item instead of the amount you have purchased it for, and these are:

It was a gift,
You sold it less than the worth,
You inherited it, or
You owned it before April 1982.

If your gain is within £6,000 by selling parts of the possession to the same person or different person, then you will not pay tax.

You can further reduce the CGT on the gains if your gains are between £6,000 and £15,000. Use the below formula:

Subtract £6,000 from the amount you’ve received.
Multiply this by 1.667.
Compare this with the actual gain – use the lower amount as your capital gain.

Capital Gain Tax on Business Assets

You must pay Capital Gain Tax when you sell or dispose all or part of business assets like, land and building, fixtures and fittings, shares, registered trademarks, machinery, or business’s reputation.

Calculate how much is the gain on Business Assets

It was a gift,
You sold it less than the worth,
You inherited it, or
You owned it before April 1982.

Reliefs on Business Assets

Check out if your gains are eligible for any of the below reliefs:

Business Asset Disposal Relief – The Business Asset Disposal Relief is a tax reduction program that gives eligible individuals a 10% discount on qualifying gains, up to a lifetime limit of £1 million, which allows them to reduce their capital gains tax. There are certain conditions that an individual must meet to qualify for the benefits, such as being a sole trader, a partner in a business, or a shareholder in a trading company.
Business Asset Rollover Relief – With Business Asset Rollover Relief, business owners can defer capital gain taxes if they sell a business asset and reinvest the proceeds into another qualifying business asset, which reduces the CGT liability until the new asset is eventually sold. The deferred gain is applied to the new asset’s cost, reducing the CGT liability until the new asset eventually is sold.
Incorporation Relief – Individuals or partnerships that transfer their businesses to companies in exchange for shares can claim Incorporation Relief, which is a tax relief that is available to them without incurring immediate CGT liabilities. This relief allows a business owner to defer payment of Capital Gains Tax (CGT) on the disposal of business assets when they incorporate their business into a company structure. The business assets could include property, goodwill, machinery, or other tangible and intangible assets.
Gift Hold-over Relief – Gift Hold-Over Relief can be claimed by business owners if they transfer business assets to their spouses and children as gifts, allowing them to defer CGT on the gifts for a period. The recipient inherits the original acquisition costs of the transferor for CGT purposes, potentially reducing future tax liabilities.

Read the post to learn in detail about each of these reliefs.

Capital Gain Tax on Shares

You need to pay CGT when you sell or dispose of shares, which includes non-ISA or non-PEP shares, or units in a unit trust, or certain bonds. To calculate the gain on the shares which was given to you as a gift refer the amount the transferor paid for the shares and if the amount you have paid is less than it’s worth, then refer the amount you have paid.

Total CGT on shares = Selling price of the shares – Cost price of the shares – fees paid (like stockbrokers’ fees) – Stamp Duty Reserve Tax (SDRT) when you bought the shares

How much do you pay CGT tax if you sell shares in the same company?

CGT = Selling price of the shares – Average cost price of your shares

Example:

You purchased 100 shares at the cost of £1 each and another 500 shares at the cost of £1.50 each. Later you sold 300 shares at the price of £550. CGT you will pay on the selling of shares is:

Calculate average cost price of the shares you have bought = Total cost price of the shares you have bought / total number of shares

= ((100 * 1) + (500 * 1.50)) / (100 +500)

= (100 + 750) / 600

= 1.41

Calculate the cost price of the shares you have sold = Average cost price * number of shares sold

= 1.41 * 300 = £423

Calculate the gain when 300 shares are sold = Selling price of the shares – Average cost price of your shares

= £550 – £423 = £127

Shares purchased through an investment club (group of people that buy and sell shares together on the stock market) calculates gain differently. Club buys back the shares form you when you leave the club.

Gain on investment club shares = Selling price of the shares when you leave the club – (gain earned on the shares – loss incurred on the shares + income from the dividends + money received from the club – money paid to the club)

You may be able to claim below tax relief on the shares:

The Enterprise Investment Scheme (EIS) is a tax relief to individuals’ investors who invest in qualifying companies, thereby stimulating economic growth and job creation. Investors can benefit from income tax relief of up to 30% on investments of up to £1 million per tax year in qualifying companies. You could delay or reduce your Capital Gains Tax if you use a gain to buy unlisted shares in companies approved for EIS.
The Seed Enterprise Investment Scheme (SEIS) is a UK government initiative introduced to stimulate entrepreneurship and innovation by supporting small, innovative companies in their initial stages of development. Investors can benefit from income tax relief of up to 50% on investments of up to £100,000 per tax year in qualifying startups. You could pay no Capital Gains Tax on a gain of up to £100,000 if you use a gain to buy new shares in small early-stage companies approved for SEIS.
Business Asset Disposal Relief – Detailed above.
Gift Hold-over Relief – Detailed above.
Rollover Relief – Delay paying Capital Gains Tax if you sell unlisted shares to the trustees of a Share Incentive Plan (SIP) and use the proceeds to buy new assets.

Report your gain to HMRC:

You must report and pay your gains to HMRC. In a business partnership firm, the person who is responsible for tax filling will fill the SA803 form.

Capital Gain tax (CGT) is a tax you pay on the gains you have made by selling or disposing an asset. Disposing an asset includes selling it, giving it away as a gift, swapping it with someone else, or getting compensation of it, like an insurance pay out when it’s lost or destroyed.

It was a gift,
You sold it less than the worth,
You inherited it,
You owned it before April 1982, or
You acquired the shares through certain Employee Share Schemes.

You pay CGT on the profit you have made, as an example if you have purchased an asset at a cost of £10,000 and sold it at a cost of £20,000, then you pay CGT on the profit amount £10,000 (i.e., £20,000 – £10,000). You pay CGT if sum of all your gains, excluding the assets which are tax-free, in a year is above the tax-free allowance. Capital losses incurred from the sale or disposal of assets can be used to offset capital gains, reducing the overall tax liability. Unused losses can often be carried forward to future tax years.

Capital gains above the annual exempt amount (£3,000 for tax year 2024-25 and £6,000 for the tax year 2023-24) are subject to CGT at various rates depending on the individual’s income tax band.

10% for basic rate taxpayers.
20% for most assets for individuals at higher rate and additional rate taxpayers.
28% for residential property and carried interest (profits from certain types of investment funds) for individuals at higher rate and additional rate taxpayers.
Additional rate taxpayers, those with taxable income above the additional rate threshold, may pay capital gains tax at the higher rate of 28% for most assets and 36% for residential property and carried interest.
If you are a trustee or personal representative of someone who has died, the n you pay 28% on residential property and 20% on other chargeable assets.

How to calculate if you need to pay CGT on your gains in a year?

Let’s understand how you can calculate the tax you own to HMRC.

Let’s suppose your total income for the tax-year 2023-24 is £50,000. Deduct the tax-free personal allowance from this and now your taxable income is: £40,000 – £12,570 = £27,430.

Your total gain for the year is £10,000. Now deduct the tax-free allowance from the amount for the year 2023-24: £10,000 – £6,000 = £4,000. So, your total taxable gain is £4,000.

Now add the taxable income to understand under which tax rate band you fall for the year 2023-24: £27,430 + £4,000 = £31,430.

This amount is less than 37,700, which falls under basic tax rate band, which means you will pay 10% CGT on the gains, i.e.,

Tax on CGT = 10% of £4,000 = £400.

On What Assests you PAY CGT	On what Assets you DO NOT PAY CGT
Personal possession worth more than £6,000, except your car	Gifts to your husband, wife, civil partner, or a charity
Additional property other than your main house	Total gain below tax-free allowance.
On Mian house if you have let it out, used it for business purpose or it’s very huge.	Gains made from ISA or PEP, UK government gilts and Premium bonds, or betting, lottery or pools winning.
Any shares that are not ISA or PEP	When you inherit an asset when someone dies.
Business shares
Overseas assets
If you are abroad, you need to pay CGT on property or land in the UK	If you are abroad, no CGT on few assets like company shares.

You must report and pay any Capital Gains Tax to HMRC due on UK residential property within:

60 days of selling the property if the completion date was on or after 27 October 2021
30 days of selling the property if the completion date was between 6 April 2020 and 26 October 2021

Buying a house is personally and financially one of the most crucial decisions. Statistically it is an important financial goal of about 70 percent of the working population and nearly 80 percent of the working population takes mortgage to buy their houses. So, the most responsible thing to do would be to know about various aspects about mortgages as this is the decision that can impact your future decisions. As you will be the one who would be paying this for a decided tenure you must decide all the factors before getting a mortgage.

What is a mortgage?

A mortgage is an agreement between you and a lender keeping property as a collateral. There are various banks which offer mortgages in the United Kingdom like Barclays, HSBC, Santander, NatWest, Nationwide etc. Having a thorough knowledge about the types, interest rates and benefits can help you in picking up the right one for you.

Types of mortgages

The first step in deciding which mortgage will be the best option for you as per your needs and preferences would be to understand various types of mortgages offered by various retail banks.

Fixed rate mortgages: Fixed rate mortgages are the mortgages having fixed rate throughout the mortgage term. It gives you a relief that your mortgage rate will not change as per the ever-changing market rates. The mortgage rate is set above a defined standard rate and is locked for the tenure of the mortgage. It is the most frequently bought mortgage as the normal working class do not shuffle their property. People tend to buy this mortgage more as they can easily calculate how much they would be paying.

Tracker Mortgages: These are mortgages which tracks Bank of England’s base rate which is the interest rate at which other banks borrow money from Bank of England. So, your interest rate can be either slightly higher or lower than the base rate. Introductory rates are lower than other mortgages. It gives you the independence of overpaying your mortgage reducing your overall interest. You can enjoy the flexibility of changing into the fixed mortgage if the interest rate goes up.

Discounted rate mortgages: Discounted rate mortgages do just what they are named to do that is to provide you a discounted rate for your mortgage but that is only for a limited initial period. The mortgage will be changed to standard variable rate once the initial offer expires. The best way to use a discounted mortgage would be remortgage the property with a different lender. You should only consider the discounted rate mortgages if you have planned for increase in installment amount once the time for early discounted is over.

Standard variable rate mortgages: Its a mortgage where you are paying installments as per the lender’s standard variable rate. The interest rate can change at any time depending on various market factors. These mortgages can be expensive as the standard variable rates are usually greater than standard base rate. It is best suited for customers who are planning to pay off their mortgage early and have planned for any increase in your interest rate.

Buy- To Let mortgage: This mortgage is suitable for people who are looking to rent out the house that they are going to purchase and want to take mortgage on that property. Lender’s usually have a certain criterion for such mortgages and there some additional charges associated with these mortgages as well. So, if you are planning to get this mortgage make sure that you have done your research and weighed your pros and cons effectively to make the right decision in selecting the lender.

Help- To -Buy mortgages: These mortgages are basically the government schemes which helps the first-time home owners to get the mortgages at a very low rates and at a very less deposit as well. However, there can be some regional limitations and there is a fixed number of people who are selected under these schemes. The advantages of these mortgages include a very less deposit of only 5 percent, low mortgage rates, interest free payments for five years, low rate of interest when you start to pay, flexibility to pay off equity loan any time. However, there are some cons associated with them such as repayment amount is not fixed, possibility of increase in interest rates, availability only on new constructions, difficulty in remortgaging and risk of negative equity.

Shared ownership Mortgage: This is the best mortgage if you are on a tight budget as you will be paying the mortgage for the part of the property that you own and the rent of the part which you don’t. the most amazing feature of this mortgage is staircasing in which you can increase your ownership as per convenience by increasing the amount of your mortgage. There is an income criteria and requirement of a good credit score for this mortgage. The advantages include opportunity to get a house at a very less deposit, ability to staircase your way to complete ownership, potential of making profit if decide to sell the property and if you are military personnel, you get priority over other groups of people for these schemes.

These are various mortgages offered in the United Kingdom. It is very easy to get confused in making the decision about the selection of the mortgage that will suit your needs best. But you do not to worry as in the next blog we will be diving deep into the factors that you should consider before getting a mortgage. So, keep following the blog as it is your money and you must use it wisely.

Making the correct selection of the mortgage as per your financial health and goals is the most important decision that you need to take in the process getting a mortgage for yourself. This selection process can be broken in to two step first being knowing the various factors that lenders consider and second step would be to completely evaluate the factors you should consider before getting a mortgage.

Factors that lenders consider to evaluate eligibility

Debt to Income Ratio (DTI: This ratio compares your monthly debt to your gross monthly income. It is a very good indicator of how much installment each month you can accommodate in your current income monthly. It consists of two ratios first being Front- end DTI which compares your house related expenses to your monthly income and second is Back-end DTI which included all your monthly debt obligations including your existing mortgages, personal loans, credit card payments, car loans etc. Lenders usually prefer a lower debt to income ratio as it shows your capacity to include monthly mortgage payment into your existing monthly obligations.

Loan to Value Ratio (LTV): It is the value of the amount of your mortgage divided by appraised value of your house. Appraised value means the value that an appraiser evaluates for your house which means the raw value which does not includes additional values including decors etc. This ratio indicates the comparison of your down payment and risk associated with the payments of the mortgage. Lenders use this ratio also to make the decision that whether they would require private mortgage insurance for your mortgage and to make the ultimate decision to give you a mortgage or not for your house. Higher the ratio lesser is the down payment and greater is the risk associated with the mortgage.

Credit Utilization ratio: This is simply the ratio of credit you are currently using to the total credit that is available to you. This is ratio is directly linked to your credit score which directs effects your ability to become eligible for the mortgage and interest rate of the same. Lower credit utilization ratio is preferred, credit utilization ratio below 30 percent is considered ideal to qualify for the mortgage.

Housing expense ratio: It your monthly housing expenses including your mortgages payments, property taxes etc. divided by gross monthly income. This ratio gives lenders a comprehensive idea about how much of your earnings go towards your housing related expenses. Lower this ratio is better is financial stability and greater is your ability to own a house.

Cash flow coverage Ratio: This is mostly used in real estate financing it is defined as property’s net operable income divided by mortgage debt service (Including principal and interest payments). It helps the lenders to assess the property’s potential to generate income to cover debt obligations.

Payment to Income ratio: This ratio measures percentage of your income going to the mortgage payments. It does not include other debt obligations like personal loans, credit cards, car loans etc. This ratio gives lenders idea that you would be afford the mortgage in your present monthly income.

Personal financial factors that you must consider

Financial readiness: It is very important to consider your employment and income stability along with your existing debts get a comprehensive idea in determining the size of mortgage that you can afford comfortably without any stress. Lenders do calculate your debt-to-income ratio to be certain about your affordability for the mortgage but you must make sure that you have a complete idea that how much bigger hole the mortgage payment will be making financially each month in your earnings.

Credit Score: Credit score is a number on a defined scale which represents how well you manage your debts. Lenders are willing to lend their money to the applicants that is how they will earn money by getting interest on the money. All they want to make sure is that there is minimum risk of default from the customer and a customer with a good credit just provides that assurance.

Down Payment: Housing mortgages have some amount associated with it which is called down payment which you are supposed to pay upfront. The more you will be paying as a down payment the lesser amount will be charged interest for the tenure of your mortgage and lower would be your installments.

Interest rates: Your research about the interest rates will save money you will be paying through your tenure of mortgage. It is very crucial to browse through the interest rates as a small reduction in the interest rate will save money and will result in lower monthly payments. As its your money you cannot afford to be lazy in this aspect.

Closing cost and other fees: You must be aware how much it will cost you if you want to close the mortgage early and what are the various fees that the lender would be charging you like the loan fees, insurances, property taxes etc. As no body likes to be see additional amount when they are at the closing stage of their mortgage.

Clarity of your future plans: By this we mean that you must be clear with the purpose regarding the property for which you are getting the mortgage. As this will be the deciding factor for the mortgage type you should go for. As if you are planning to shuffle the property and make some benefit out of it discounted rate one would be the best option.

Financial stability: This factor must be considered even before you are planning to get a house and an analysis must be done in order to know whether it is the right time, do have the required down payment and are you ready to the extra load of the monthly payments. As this analysis defines your capability to responsibly manage your mortgage.

You must consider the factors listed as it is your money and you are decision maker about the mortgage that you are planning to take. One wrong decision can lead to a domino effect in finances and you should not be the suffering the consequences of lack of awareness.

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