Capital Gains for Companies: Chargeable Gains Explained
Companies pay corporation tax on chargeable gains, not capital gains tax. This guide covers calculating chargeable gains, indexation allowance, the substantial shareholding exemption, and rollover relief.
When a company sells a capital asset at a profit, the gain is subject to corporation tax — but the rules differ significantly from the capital gains tax that applies to individuals. Understanding these differences, and the reliefs available, can make a material difference to the tax cost of disposals.
What Counts as a Chargeable Asset?
Chargeable assets include land and buildings, shares in other companies, goodwill, intangibles (unless within the intangible assets regime), and other investments. Trading stock disposals are taxable as income, not as chargeable gains — the distinction between capital and revenue treatment is a frequent source of HMRC enquiry.
Computing the Gain
Gain = Proceeds minus Base Cost minus Enhancement Expenditure minus Incidental Costs of Disposal. Base cost is the original acquisition price plus capital improvements (not revenue expenditure such as repairs). Incidental costs include legal fees, agent's fees, and valuation costs directly attributable to the disposal.
Indexation Allowance
Indexation allowance uplifts the base cost by RPI inflation to reduce the real (inflation-adjusted) gain. It was frozen at December 2017 — available for the period from acquisition to December 2017, but no further. Companies that have held assets since before 2017 will still have meaningful indexation available.
Substantial Shareholding Exemption (SSE)
The SSE is one of the most significant reliefs in the corporate tax code. It exempts gains on disposal of shares in a trading subsidiary where the selling company has held at least 10% of the ordinary shares for at least 12 months in the two years preceding disposal. For groups restructuring, divesting non-core subsidiaries, or undertaking MBO transactions, the SSE analysis is the first question to address.
Rollover Relief
Rollover relief defers a gain by reinvesting the proceeds in qualifying replacement assets within the three-year window (one year before to three years after disposal). The deferred gain reduces the base cost of the replacement asset. Qualifying assets include land, buildings, and fixed plant used for business purposes.
Further Reading
Study with Learnsignal: Tax CPD for qualified accountants. Browse CPD.
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