A company does not pay capital gains tax. Its chargeable gains, after deducting capital losses, are added to its total profits and taxed at the corporation tax rates for the year, and there is no annual exempt amount. Indexation allowance still reduces gains on assets held before 2018, but it is frozen at December 2017 and can never create or increase a loss. Capital losses can only be set against chargeable gains of the same or later periods, never against trading income and never carried back.

How are a company’s gains taxed?

Section 2A of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) says the amount of chargeable gains included in a company’s total profits for an accounting period is its gains for the period, less allowable losses of the period, less allowable losses brought forward that have not already been used. That net figure is simply part of the profits charged to corporation tax. For the financial year beginning 1 April 2026, HMRC’s rates table shows a small profits rate of 19% for profits under £50,000, a main rate of 25% for profits over £250,000 and marginal relief in between, so a gain can push a company into a higher effective rate. Our pages on corporation tax and marginal relief explain the bands.

The annual exempt amount in section 1K TCGA 1992 is given to individuals and personal representatives, not companies, so every pound of net gain is taxable. The capital gains tax rates that apply to individuals do not apply either.

How is the gain itself computed?

HMRC’s guidance on corporation tax when a company sells assets describes the steps:

  1. Take the disposal proceeds, or market value if the company gave the asset away or sold it for less than its worth to help the buyer.
  2. Deduct the cost of acquiring the asset, using market value if it was not acquired in a normal commercial transaction.
  3. Deduct costs of buying, selling or improving the asset, such as solicitors’ fees and stamp duty. Maintenance costs are not deductible.
  4. For assets held before December 2017, deduct indexation allowance on the cost and on each improvement.

The categories of allowable cost follow the same rules as for individuals, described in our page on allowable costs for capital gains. Goodwill and other intangible assets created or acquired by a company are normally taxed under a separate regime for intangible assets, not as chargeable gains, as HMRC’s guidance notes.

How does the frozen indexation allowance work?

Indexation allowance adjusts the cost of an asset for inflation measured by the retail prices index. Section 53(1B) TCGA 1992 now provides that indexation is not allowed for changes in the retail prices index for months after December 2017. In practice:

  • an asset bought before December 2017 gets indexation from the month of purchase to December 2017, however much later it is sold;
  • an asset bought from December 2017 onwards gets no indexation at all;
  • HMRC’s guidance points to its December 2017 indexation allowance tables, which give an inflation factor for the month each item of expenditure was incurred.

Two limits apply. Under section 53(1) indexation can reduce an unindexed gain to nil, producing neither a gain nor a loss, but it cannot turn a gain into a loss. Under section 53(2A) it does not apply at all to a disposal on which a loss accrues. HMRC’s own example on GOV.UK uses an indexation factor of 0.509 for a March 2001 purchase costing £120,000, giving an allowance of £61,080.

How can capital losses be used?

The rules for companies are narrower than for trading losses:

  • Gains only. HMRC’s guidance states that capital losses can only be deducted from chargeable gains, not from trading income or other profits. A trading loss, by contrast, can be set against total profits including gains, as explained in our page on company trading losses.
  • Same period, then forward. Section 2A deducts losses of the period and then earlier losses not yet used. There is no carry back.
  • Only if a gain would be taxable. Section 2A(2) says a loss is not allowable if the company would not have been chargeable on a gain. So a loss on shares qualifying for the substantial shareholding exemption is not allowable (CG53005).
  • Capital allowances reduce losses. HMRC’s guidance notes that the loss is reduced by capital allowances claimed on the asset, so plant and machinery rarely produces a usable capital loss. See capital allowances explained.
  • Restriction for large gains. From 1 April 2020, carried forward capital losses fall within the loss restriction, so gains above the deductions allowance can only be half covered by brought forward losses. Our page on the corporate loss restriction explains the calculation.

A company whose shares or loans have become worthless may be able to crystallise a loss without a sale, as covered in negligible value claims.

What special rules apply to groups?

A capital gains group is a principal company and its 75% subsidiaries that are also effective 51% subsidiaries (CG45100). Under section 171 TCGA 1992, an asset transferred between members of the same group passes on a no gain, no loss basis, so tax is deferred until the asset leaves the group. If the company that received the asset later leaves the group, a degrouping charge can arise (CG45300). Instead of moving assets, a group can make an election under section 171A to treat a gain or loss as accruing to another member, so gains and losses in different companies can be matched.

When are gains on shares exempt?

The substantial shareholding exemption in Schedule 7AC TCGA 1992 exempts a gain on a company’s disposal of shares where it has held at least 10% of the ordinary share capital, with matching rights to profits and assets, for a continuous 12 month period ending no more than five years before the disposal, and the company invested in meets the trading requirement (CG53070, CG53005). No claim is needed, and losses in the same circumstances are not allowable. The conditions are set out in our page on the substantial shareholding exemption.

What does a typical computation look like?

Illustration only. A trading company with a 31 March year end sells an investment property in the year to 31 March 2027 for £900,000. It bought the property in 2012 for £500,000 and paid £20,000 in buying costs and £15,000 in selling costs. Assume an indexation factor of 0.300 from the purchase month to December 2017. The company has a capital loss of £40,000 brought forward.

Step Amount
Proceeds £900,000
Less cost and buying costs (£520,000)
Less selling costs (£15,000)
Unindexed gain £365,000
Less indexation: 0.300 x £520,000 (£156,000)
Indexed gain £209,000
Less capital loss brought forward (£40,000)
Net chargeable gain added to total profits £169,000

The £169,000 is taxed alongside the trading profit for the year. If the company also had a current year trading loss, it could claim to set that loss against the gain.

What mistakes are common?

  • Indexing to the date of sale. Indexation stops at December 2017.
  • Using indexation to create a loss. It can only reduce a gain to nil.
  • Deducting an annual exempt amount. Companies have none.
  • Setting a capital loss against trading profits. It can only reduce gains.
  • Claiming a loss on exempt shares. Where the substantial shareholding exemption applies, the loss is not allowable either.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.