When you sell Commercial Property in the UK, you may incur Capital Gains Tax (CGT) on any profits made from the sale. The amount of CGT depends upon several factors, including the nature of your business, the property’s use, and the taxable income.
This article will outline the key points of CGT on commercial property in UK, providing an overview of how tax is calculated and about reliefs and exemptions.
When Does CGT Apply to Commercial Property?
Capital Gains Tax (CGT) is charged on the gain made from the sale or disposal of certain assets, including commercial property. The ‘gain’ here is the difference between the disposal proceeds of property and the property’s ‘base cost’ which includes purchase price, improvements, and other selling expenses.
CGT is typically incurred when:
- You sell a commercial property
- You exchange the property for something else (such as a different property or assets).
- You transfer the property as part of a business restructuring.
The gains usually are subject to CGT unless specific exemptions and reliefs apply which would reduce or eliminate the CGT liability.
How is CGT calculated on Commercial Property?
CGT is calculated on the gain which you have made. This gain is the difference between the amount you sold the property for, and the cost directly related to the purchase such as Purchase Price, legal and professional fees while incurring the purchase and the improvements made to the property.
The formula for calculating CGT is:
CGT = Sales Price – (Purchase Price + Allowable Cost)
Example
Step | amount |
|---|---|
Purchase Price | £400,000 |
Sales Price | £500,000 |
Selling Costs | £5,000 |
Improvements to property | £20,000 |
Base Cost (Purchase Price + Improvements made to property) | £420,000 |
Capital Gains (Sales Price - Selling Cost - Base Cost) | £75,000 |
Annual Exempt Amount | (£3,000) |
Taxable Gain | £72,000 |
CGT Rates for Commercial Property
The rate of CGT depends upon the overall income level (Whether basic or higher rate taxpayer) and whether the property was used for business purposes.
Basic Rate Taxpayers
If your total taxable income (including gain from selling the property) falls within the basic income tax band (up to £50,270 for the 2024/25 tax year), the CGT rate is 18% on the gain from the sale of commercial property.
Higher Rate Taxpayers
If your total taxable income exceeds the basic rate threshold, you will have to pay 24% CGT on the gain from sale of commercial property.
However, if the property was used for business purposes, reliefs and exemptions may apply, which will reduce the CGT rate or liability.
Reliefs and Exemptions for CGT on Commercial Property
There are several reliefs and exemptions that could reduce or eliminate the amount of CGT due on the sale of commercial property. Some of the reliefs are:
Business Asset Disposal Relief (BADR)
Business Asset Disposal Relief allows individuals to pay a reduced CGT rate of 10% (this rate is soon to rise to 14% from 6 April 2025, and again to 18% from 6 April 2026) on the sale of commercial property up to a lifetime limit of £1m gains.
To qualify for this relief:
If you are selling all or part of the property:
- the property must have been used in a business,
- and the seller must have owned the property for at least two years before the sale.
The business must be a trading business, not one primarily concerned with investing or dealing in land, shares, or securities. BADR does not apply to the commercial property which is simply let out to third party for rental income purposes.
To claim Business Asset Disposal Relief, you will need to report the sale of the asset to HMRC in your Self-Assessment tax return.
Example of using BADR
Suppose you own a commercial property used in your business, and you decide to sell it for a profit. Here, we have assumed that seller is a higher rate taxpayer.
Particular | Amount |
|---|---|
Sales Price | £650,000 |
Original Purchase Price | £300,000 |
Gain (Sales Price - Original Purchase Price) | £350,000 |
If you meet the conditions for BADR, the £350,000 gain would be taxed at 10% instead of standard CGT rate of 24% (for higher rate taxpayers). This means CGT that would be paid is:
CGT = £350,000 * 10% = £35,000
Business Asset Rollover Relief
The key requirement for the rollover relief is that the proceeds from the sale of the assets must be reinvested into another qualifying business assets (such as land, buildings, goodwill, plant and machinery) within 3 years of disposing of the old assets. You must use the old and new assets in trading or business activities. This relief does not apply to personal assets or investments like stocks or shares. In this relief, the CGT liability is deferred and doesn’t need to be paid until you dispose of the new assets.
This is not the automatic relief; you need to claim for this, and you must claim relief within 4 years of the end of tax year.
- In which the disposal occurred or
- the replacement asset was acquired
- whichever is later
Replacement assets should be qualifying business assets mean that they should be used in the trading or business activities. Shares usually don’t qualify for this relief as they are considered investments rather than business assets.
For more information regarding rollover relief, refer to, Rollover Relief (HMRC).
Incorporation Relief
Incorporation relief is the relief that allows individuals to transfer commercial property and all its assets (except cash) from a sole trader or partnership to a limited company in return for the shares. This relief allows the business owner to transfer their business and assets without having to pay CGT at time of transfer and will have to pay the tax when shares are disposed.
Example
When you transfer your business, and you received 70% in shares and 30% in cash then you can only postpone 70% of the gain received from the transfer until you sell the shares, and you must pay CGT on 30% of the gain in your next tax return.
When to Pay CGT on Commercial Property?
For non-Uk resident, CGT on commercial property is due within 60 days of the sale completion date. But for the UK-resident these 60 days rule does not apply. Instead, they must include the disposal in their self-assessment tax return. For example: Disposal on the tax year 2024/25, the deadline is 31 December 2026. It is crucial to ensure proper reporting and payment within these timeframes to avoid any penalties and interests.
Conclusion
Capital gains tax on a commercial property is a critical consideration for property owners, business owners, and investors in UK. The tax is levied on the profit made from the disposal of the property, whether through sale, gift, exchange, or other forms of transfer. The key is to be aware of the various assumptions and tax reliefs offered by HMRC, including Business Asset Disposal Relief, Rollover Relief, Incorporation Relief and Gift Hold-Over Relief. If you plan to sell commercial property, it’s advisable to consult with a tax professional to ensure you fully understand your CGT obligations and to take advantage of the above-mentioned reliefs.
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- Property Investor and Property Developer: What Are the Tax Differences? - 13 March 2026
- HMRC’s Nudge Letters on Business Asset Disposal Relief (BADR) - 24 February 2026
- HS281 Capital Gains Tax Civil Partners and Spouses - 15 October 2025
