Selling commercial property can trigger Capital Gains Tax (CGT) on the profit you make. This guide explains when Capital Gains Tax on Commercial Property applies, how it is calculated (including when market value rules apply), and practical ways to reduce your overall tax liability.

Key Takeaways

• Capital Gains Tax (CGT) applies to profits from selling commercial property and calculations can be complex, with the option to offset gains using losses from other disposals.
• Individuals pay CGT based on their income tax band, while companies generally pay corporation tax on profits from property sales.
• Reliefs such as Business Asset Disposal Relief and Rollover Relief can significantly reduce CGT, so forward planning is essential if you want to minimise your CGT bill.

Capital Gains Tax (CGT) is charged on the profit you make when you dispose of an asset, including commercial property. In straightforward terms, CGT applies when the sale price is higher than the purchase price once allowable costs are taken into account.

Allowable costs can include capital improvements and selling costs, but routine maintenance (such as repairs or decorating) is not deductible. In practice, CGT calculations can become complicated because they depend on how the property has been used, how it is owned, and which reliefs apply.

For commercial property owners, CGT can have a major impact on the net proceeds of a sale. Commercial property is often held for business purposes, which adds extra considerations compared to residential property. Understanding the basics helps you plan the timing of a sale, keep the right records, and avoid paying more tax than necessary.

When Do You Pay Capital Gains Tax on Commercial Property?

You usually pay CGT when you sell a commercial property for a profit. CGT can also apply when you transfer or exchange property, including during business restructures. It is not limited to commercial property, so it is important to understand how CGT applies to any property disposal.

UK residents typically report gains through Self Assessment by the end of the tax year (5 April) following the sale. Non-UK residents generally have a shorter reporting and payment window and may need to report and pay within 60 days of completion.

One of the most useful planning points is that gains can often be reduced using capital losses. If you have losses from previous disposals, you may be able to carry them forward and set them against future gains, which can reduce how much tax you ultimately pay.

Calculating Your Capital Gains Tax

Calculating your capital gains tax (CGT) starts with working out the gain: the sale proceeds (the gross amount received) minus the base cost. The base cost usually includes the original purchase price plus allowable acquisition and disposal costs.

Allowable costs can include capital improvements, legal fees, estate agent fees, and Stamp Duty Land Tax (SDLT) paid on purchase. If the property is gifted or transferred (rather than sold), market value rules may apply, meaning the gain is calculated using the market value at the date of transfer instead of a sale price.

For example, if you bought a property for £250,000 and sold it for £350,000, with £20,000 in allowable costs, the taxable gain would be £80,000.

If the property is a jointly owned property:

• Each owner calculates their share of the gain separately.
• Qualifying capital improvements (such as extensions) can be deducted.
• Routine maintenance costs are not deductible.

Accurate records matter. You can only deduct costs you can evidence, so keeping invoices and completion statements makes a measurable difference to the final calculation.

Once the gain is calculated, you can reduce it by the annual exempt amount (also referred to as the CGT annual exempt amount). For 2023/24, this allowance is £6,000 per individual, so CGT is only paid on gains above this threshold within the tax year.

The remaining taxable gain is then charged at the appropriate CGT rate, which depends on your taxable income and the portion of the gain that falls within each income tax band.

Applicable Capital Gains Tax Rates

For individuals, CGT on commercial property depends on your income tax position. As of 6 April 2025, basic rate taxpayers pay 18%, while higher rate taxpayers pay 24%.

Companies do not usually pay CGT. Instead, profits from commercial property disposals are subject to corporation tax, currently charged at a flat 25% rate for many companies. Understanding the applicable rate and timing can help you plan disposals more strategically and manage your overall tax position.

Reliefs and Exemptions for Capital Gains Tax

Reliefs and exemptions can significantly reduce CGT when selling commercial property. The most common reliefs include:

• Business Asset Disposal Relief
• Business Asset Rollover Relief
• Incorporation Relief

Many owners pay more than they need to simply because reliefs are missed or claimed too late. If you are a property investor, developer, or business owner, planning ahead helps you make the most of reliefs and allowances while staying compliant.

Business Asset Disposal Relief

Business Asset Disposal Relief (BADR) (previously Entrepreneurs’ Relief) can reduce CGT to 10% on qualifying disposals. To qualify, the commercial property generally needs to have been used in a trading business and held for at least two years.

BADR is claimed through your Self Assessment return and is subject to conditions and a lifetime limit (currently £1 million). Because the rules are detailed, it is important to ensure eligibility before relying on the 10% rate in a sale plan.

Rollover Relief

Business Asset Rollover Relief allows you to defer CGT if you reinvest the proceeds into another qualifying business asset. This can be particularly useful where you want to keep capital working in the business rather than extracting profit immediately.

• The proceeds generally need to be reinvested into a qualifying business asset.
• Both the old and the new assets must be used for business purposes.
• The claim must normally be made within four years of the end of the relevant tax year.

Used correctly, rollover relief can preserve capital for reinvestment and support longer-term growth.

Incorporation Relief

Incorporation Relief can allow business owners to transfer property into a limited company without an immediate CGT charge, deferring the gain until the shares are sold.

If you transfer a business and receive a mix of shares and cash:

• The part received as shares can defer a proportion of the gain.
• The cash element can trigger an immediate CGT charge.
• The deferred gain is typically taxed when the shares are later disposed of.

Reporting and Paying Capital Gains Tax

CGT reporting has strict deadlines. UK residents generally report gains through Self Assessment by 31 December after the end of the tax year. Non-UK residents commonly face a 60-day deadline from completion to report and pay.

Late reporting can result in penalties, starting with an initial £100 fine and increasing if delays continue. Keeping accurate records and knowing what to report reduces the risk of avoidable fines and interest.

Impact of Capital Gains Tax on Different Types of Owners

CGT affects owners differently depending on how the property is held. Individuals (including self-employed business owners and investors) pay CGT on qualifying gains. Limited companies generally pay corporation tax on gains made by the company, not CGT.

Non-UK residents have also been within scope of UK tax on certain UK property disposals since April 2019, including disposals of interests in property-rich companies. If you are non-resident, the reporting rules and deadlines are particularly important.

Tax Planning Strategies

Effective planning can reduce CGT significantly. Practical strategies include:

• Timing disposals in years where income is lower, so more of the gain falls within a lower band.
• Staggering sales to make better use of the annual exempt amount.
• Using available allowances and reliefs rather than assuming full CGT will apply.
• Claiming capital allowances on qualifying fixtures and assets where appropriate to reduce taxable profits.

In some cases, transferring assets between spouses can help manage overall tax exposure, depending on wider circumstances. A tax professional can help ensure any strategy is both effective and compliant.

If the property is also generating rental income, factor that into your planning. Rental income can affect your income tax position, which in turn can influence the CGT rate applied to part of the gain.

Additional Taxes on Commercial Property Sales

CGT is not the only tax that may arise. Commercial property transactions can also involve Stamp Duty Land Tax (SDLT). For non-residential purchases above £150,000, SDLT is charged on a tiered basis: 0% up to £150,000, 2% on the next £100,000, and 5% on amounts above £250,000. SDLT can also apply to lease premiums for leasehold interests.

VAT may also apply, depending on whether the sale is opted to tax. This can affect cash flow and the overall cost of the transaction.

For rates, commercial properties are generally subject to business rates rather than council tax. Mixed-use properties may involve both, depending on how the property is split and used.

Common Mistakes to Avoid

Mistakes can increase tax, trigger penalties, or both. Common issues include:

• Failing to report all gains, leading to problems if HMRC identifies discrepancies.
• Misclassifying disposals or misunderstanding how a transaction should be treated.
• Overlooking how changes in property use affect the CGT position.
• Not keeping clear records of allowable costs, which can inflate the taxable gain.

Seeking Professional Help

Professional advice can help you reduce CGT legally and avoid common compliance errors. A specialist can help you:

• Identify relevant reliefs and allowances for your circumstances.
• Structure transactions correctly and meet reporting deadlines.
• Understand the impact of recent tax changes and plan around them.

Experienced solicitors and property tax accountants can also help ensure documentation and calculations are accurate, and that you do not miss relief claims that could reduce the final tax bill.

Capital gains tax on commercial property is manageable with the right preparation. When you understand when CGT applies, how gains are calculated, and which reliefs are available, you can make better decisions and protect your net sale proceeds.

With the insights above, you are better placed to plan commercial property disposals confidently, reduce avoidable tax costs, and stay compliant. If you are selling or restructuring soon, consider getting advice early so the right reliefs can be built into the plan rather than rushed after the event.

Frequently Asked Questions

When do I need to pay capital gains tax on my commercial property?

You pay CGT when you dispose of commercial property for a profit. UK residents usually report it through Self Assessment, while non-residents often have to report and pay within 60 days of completion.

How do I calculate the capital gains tax on my commercial property?

Work out the gain by subtracting the purchase price and allowable costs from the sale proceeds (or market value if relevant rules apply). Then apply the annual exempt amount and charge the remaining gain at the CGT rate that applies to your income band.

What are the applicable capital gains tax rates for commercial properties?

For individuals (from 6 April 2025), the rates are 18% for basic rate taxpayers and 24% for higher rate taxpayers. Companies typically pay corporation tax on profits from property sales.

What reliefs and exemptions are available to reduce capital gains tax?

Key options include Business Asset Disposal Relief, Rollover Relief, and Incorporation Relief, provided you meet the qualifying conditions and claim within the required time limits.

Should I seek professional help for managing capital gains tax on commercial property?

Yes. A tax professional can help you apply the right reliefs, keep calculations accurate, meet deadlines, and reduce your CGT liability legally.