The idea of the sale of a business asset may prove to be an ingenious move in your business, yet it is frequently subject to tax by HMRC. If you have made a profit called capital gains on commercial property, you are likely to pay capital gains tax on commercial property. In the UK, it might cost you on your tax return, as high as 24 percent of your profit.
However, there are legal ways of reducing this tax or even avoiding this tax altogether. We will discuss useful measures of how to avoid capital gains tax on business property in this guide. It includes reliefs and the exemptions required. When you do, you are going to have a clear plan on how to keep more of your hard-earned profit.
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What is Capital Gains Tax on Commercial Property?
When you sell a commercial property, like an office or warehouse and make a profit, you’ll have to pay Capital Gains Tax or CGT for short. Basically, it’s a tax on your gain, not the whole sale price.
You work it out by taking what you originally paid for it plus any money you spent on major upgrades, and subtracting that from your sale price. Things like shops, offices, and warehouses don’t get the same tax-free pass that your main home might get.
For example, imagine you bought an office block for £400,000, put in £20,000 for a refurb, and later sold it for £500,000. After knocking off about £5,000 in selling costs, your profit comes to £75,000. Now, for the 2025/2026 tax year, you get to keep the first £3,000 of that tax-free, so you’d only be taxed on the remaining £72,000.
While there’s no way to completely avoid this tax, the good news is that HMRC has special reliefs and allowances, especially if the property is part of a business. Getting to grips with these is your best bet for keeping your tax bill as low as possible.
Current CGT Rates and Allowances for 2025/26
For the 2025/26 tax year, the annual Capital Gains Tax (CGT) exemption is £3,000. The tax rates that apply to gains over this amount are determined by your income tax band:
- Basic rate taxpayers pay 18% on their gains.
- Higher and additional rate taxpayers pay 24%.
There is also a reduced rate for certain business assets:
Business Asset Disposal Relief (BADR): For qualifying gains, the rate is 14% from 6 April 2025. This rate will increase to 18% from 6 April 2026.
Key Strategies for Avoiding Capital Gains Tax on Commercial Property
Tax planning involves making use of the rules and reliefs provided by HMRC to minimise your tax liability
Here are a few strategies to avoid capital gains tax on commercial property in the UK:
Use Your Annual Exemption Wisely
Start small but be prudent. All of you are entitled to a £3,000 tax-free exemption annually. If your commercial property capital gains are less than that, all is clear. If it’s higher, it decreases the amount liable to be taxed.
How to make it effective? Time your sale to take advantage of unused allowances from previous years? Sorry, it can’t be carried forward. But if selling multiple assets, distribute them over tax years (6 April to 5 April). For example, by selling one asset in March 2026 (2025/26 tax year) and another in June 2026 (2026/27 tax year), you can utilise the annual exemption for both years.
Set Your Losses Against Your Wins
Got a losing investment elsewhere? Convert it into a tax shield. Other asset losses, e.g., shares or other property, can be used to offset your commercial property capital gains.
Eligibility: You can offset losses realized in the same tax year, or carried forward from previous tax years. There is no time limit for carrying forward allowable losses.
Example: Suppose you make a £50,000 capital gain from a commercial property sale. If you have an allowable capital loss of £10,000 from a previous tax year, you can offset this loss against the gain.
The gain is reduced to £40,000 (£50,000 – £10,000). After deducting the annual exempt amount (£3,000 for 2025/26), your taxable gain becomes £37,000. Using this loss effectively reduces your potential CGT liability.
Business Assets Relief Disposal (BADR) Claim
Let’s talk about something called Business Asset Disposal Relief, or BADR for short. Honestly, it’s a huge deal for most business owners out there. What it does is slash the Capital Gains Tax (CGT) rate you pay. So, if you sell something that qualifies in the 2025/2026 tax year, you’ll pay just 14% on the gain, rather than the higher standard rates. This special rate applies up to a total of £1 million in lifetime gains.
Eligibility: The property you’re selling has to have been genuinely used as part of your trading business for at least two years before you sold it. We’re talking about things like your workshop, your office, your shop, not just a property you leased out to someone else as an investment. You also need to be a sole trader, a partner in a business, or own at least 5% of a personal trading company.
Here’s how it works: You take that lower 14% rate and apply it to your eligible gain after you’ve used your £3,000 annual tax-free allowance. For instance, imagine you made a £200,000 profit that qualifies. You’d knock off that £3,000 exemption, leaving £197,000 as your taxable amount. At 14%, your tax bill would be £27,580. That’s a serious chunk of change less than if you had to pay the normal 24% rate!
Defer Tax with Rollover Relief
Are you ready to pay now? Business Asset Rollover Relief gives a chance to roll the gain to a different trade asset, deferring the CGT to the date of the subsequent sale of that second asset.
Eligibility: Both the old and the new asset must be used in a trading business. You must purchase the new asset within the period starting 12 months before and ending 3 years after the sale of the old asset. The assets must also be of a specific type (e.g., land and buildings, fixed plant and machinery).
How it works: If the full sale proceeds are reinvested into a new qualifying asset, the entire gain can be deferred. If only part of the proceeds is reinvested, only a proportionate amount of the gain can be deferred.
Example: You sell a commercial property for £500,000, making a £100,000 gain. If you buy a new warehouse for £600,000 (which is greater than the £500,000 sale proceeds), the full £100,000 gain can be deferred. You will not pay CGT at this point.
Defer CGT with Incorporation Relief
If you are a sole trader or in a partnership, you can defer Capital Gains Tax (CGT) when you transfer your entire business and its assets (such as commercial property) to a limited company in exchange for shares.
Eligibility:
- You must transfer the whole business as a “going concern” to the company.
- All business assets (excluding cash) must be transferred.
- You must receive shares in the new company as consideration. If you also receive cash, tax relief is restricted on the cash portion.
How it works:
The gain that would have arisen on the transfer of assets is deferred by being “rolled over” to reduce the base cost of your new shares in the company. You will then only pay CGT on this deferred gain when you eventually sell the shares. This relief applies automatically if the conditions are met, but it is possible to elect for it not to apply.
Example:
If you transfer your sole trader business, including a commercial property with a significant gain, into a new company solely in exchange for shares, you can defer the CGT on the property’s gain. No CGT is payable at the time of the transfer. The tax liability is postponed until you later sell your shares.
Gift Holdover Relief for Family or Succession
Are you thinking of passing it to another person? Gift Holdover Relief grants you the right to transfer it on without CGT, the recipient acquires your base cost.
Eligibility: The relief applies to gifts or transfers of qualifying business assets, such as shares in a personal company or assets used in a trading business. The transfer must not be for full value; it’s typically for less than full market value or free of charge (a gift).
The CGT liability is transferred from the giver to the recipient. When the recipient eventually sells the asset, they will pay CGT on the gain calculated using the giver’s original base cost. This effectively defers the tax liability until a later date. This can be a useful tool for succession planning or passing on assets to family members or business partners.
Transfer to Your Spouse or Civil Partner
Between spouses, they are exempt from CGT on transfer.
Eligibility: Any asset, such as commercial property, is eligible. Take advantage of allocating profits to the subsequent earner.
Key idea: Sell to your spouse, use his/her allowance and tax band. A gain of £100,000 divided into two would save thousands of pounds in case the individual is a basic rate taxpayer.
No limit, but report it. It is beneficial for the couple with varying incomes.
Donate Assets to Charity
If you donate qualifying assets, including commercial property, or cash, to a registered charity, you can benefit from tax reliefs. Donating assets can eliminate your Capital Gains Tax (CGT) liability on that asset, and you may also receive income tax relief.
Eligibility:
- The donation must be made to a registered UK charity.
- Charities are typically exempt from CGT and can sell donated assets without incurring tax themselves.
By donating a qualifying asset, you avoid paying CGT on any capital gain that would have arisen from selling it. For instance, donating a commercial property with a £200,000 gain (after the £3,000 annual exempt amount for 2025/26) would save a higher rate taxpayer £47,280 in CGT (24% of £197,000).
Increasing Pensions or ISAs to Go in Lower Band
Making extra pension contributions can lower your taxable income. If this moves you into a lower income tax bracket, the portion of your capital gain that falls within that band will be taxed at the lower 18% CGT rate (for 2025/2026).
ISAs are not relevant for commercial property. You cannot hold commercial property directly in an ISA. The “Bed and ISA” strategy is for shares and funds.
Invest in EIS or VCT for Deferral
Finally, and another useful way to avoid CGT, for EIS, you can defer Capital Gains Tax (CGT) by reinvesting a gain from an asset (like commercial property) into shares of a qualifying EIS company.
How it works: The CGT is postponed until you sell the EIS shares.
Investment timeframe: The investment must be made within one year before or three years after the asset disposal.
Additional relief: EIS investment also provides income tax relief.
Risk: These are higher-risk investments.
Note: For VCTs, they do not offer CGT deferral for gains from other assets. Instead, they offer a different set of tax benefits, such as tax-free growth and dividends on the VCT shares themselves, as long as they are held for at least five years.
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Bottom Line
Commercial property capital gains tax does not have to pinch you. Since the £3,000 exemption to mega reliefs such as the BADR and the rollover, you have many ways of shielding your profits. First, review your commercial property. Does your property qualify as relief on business? Wise time sales, offsetting losses, and family transfers.
Smart thinking is the way you can pay zero capital gains tax in case of commercial property and become free to invest in your next business venture. Do not forget that the tax laws differ, and it is important to consult a professional on a regular basis.
Reach out to our intelligent and clever-minded guys to get the answer to your queries in the UK, we will get to your answers quickly. We will help to decide how to deal with your tax implications.
Disclaimer: The information about the capital gains tax on commercial property provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.
