Capital gains for limited companies and unincorporated associations (eg clubs and co-operatives) are dealt with through corporation tax and are referred to as chargeable gains. The total chargeable gains are included in the corporation tax return and taxed along with your business profits, using the corporation tax rate (rather than a separate capital gains tax)
Tax on chargeable gains can be reduced, deferred or eliminated altogether by making use of available allowances, reliefs and exemptions but the rules are complicated, so take professional advice from your accountant.
Company capital gains - the basics
A company makes a chargeable gain if it disposes of an asset for more than it paid for it. Disposal can include selling the asset, exchanging it, giving it away or even receiving compensation for damage or destruction.
Common sources of capital gains are sales of premises, land or investments. Typically, other assets will be worth less than you paid for them. Disposals of intangible assets (such as intellectual property) are normally included in trading profits rather than chargeable gains, though different rules apply for older assets created or acquired before April 2002.
Company chargeable gains are based on the difference between the disposal value and the purchase cost and an allowance for inflation. The disposal value might normally be the sale price, but if an asset is not sold at arm’s length (eg if you give it away), the disposal value is the market value. Likewise, the cost is normally the purchase price or market value when you acquired the asset, though special rules apply in some circumstances.
You can deduct any expenses of buying, improving and selling the asset when working out capital gains. You then apply an indexation allowance, which reduces the gain by taking inflation into account. Use the HMRC’s chargeable gains for companies toolkit to calculate your indexation allowance.
Company capital gains - capital losses
You can reduce your chargeable gains by offsetting any capital losses (ie where assets have been sold for less than their cost). However, where assets have qualified for capital allowances (ie the annual writing-down allowance that can be set against corporation tax), the loss you can claim is reduced by the value of these allowances.
For example, if you bought an asset for £10,000, received capital allowances totalling £3,000 over the next few years and finally sold it for £5,000, the capital loss would only be £2,000 - the loss of £5,000 reduced by the £3,000 capital allowances.
In addition, the indexation allowance can only be used to reduce a capital gain, not to increase a loss.
Where you have capital losses, these can be deducted from any company capital gains to work out the net chargeable gains that are taxable. If the losses exceed the gains, the balance can be carried forward to set against future company capital gains.