Corporation Tax on Business Asset Sales

Corporation Tax When Selling Business Assets: What Companies Need to Know

When a limited company sells a business asset, it's important to understand the potential Corporation Tax implications. Whether you're disposing of property, equipment, machinery or company shares, the sale could give rise to a taxable profit known as a chargeable gain.

Understanding the rules in advance can help you make informed decisions and avoid unexpected tax liabilities.

What is a Chargeable Gain?

A chargeable gain is broadly the difference between what your company receives for an asset and what it originally paid for it.

In calculating the gain, your company can usually deduct:

• The original purchase cost of the asset
• Certain acquisition and disposal costs, such as legal fees and Stamp Duty
• Qualifying costs of improving the asset

In some situations, HMRC may require the asset's market value to be used instead of the actual sale price. This commonly applies when assets are gifted or sold below market value to connected parties.

Which Assets Are Covered?

Corporation Tax on chargeable gains can apply to a wide range of business assets, including:

• Commercial property and land
• Plant and machinery
• Business investments and shares
• Other capital assets owned by the company

Different tax rules can apply to intangible assets such as goodwill, intellectual property and certain licences, so specialist advice is often recommended.

Can Losses Be Used?

If your company makes a loss on the disposal of a capital asset, this may generally be used to offset chargeable gains made on other disposals.

However, capital losses cannot typically be used against trading profits or other forms of company income. Additional restrictions may also apply where capital allowances have previously been claimed.

What About Indexation Allowance?

For assets acquired before December 2017, companies may still benefit from Indexation Allowance, which provides relief for the effects of inflation up to December 2017.

While the allowance no longer accrues after that date, it can still reduce the taxable gain when calculating Corporation Tax on qualifying assets purchased before the change in legislation.

Planning Ahead Can Save Tax

The timing of a disposal, the availability of losses, group company considerations and the nature of the asset being sold can all significantly affect the eventual Corporation Tax bill.

Before selling a valuable business asset, it is worth reviewing the potential tax consequences and exploring any planning opportunities available.

At Charlton Baker, our corporate tax specialists work closely with business owners and company directors to help them understand the tax implications of business transactions and structure disposals as efficiently as possible. Call our experts now on 01380 723692 or email here.