What kind of 'sale' triggers CGT
Selling a freelance business is rare for individual contractors but common for freelance agencies and one-person Ltd companies that build a client book or asset base worth transferring. UK Capital Gains Tax on such disposals runs at 10-20% for individuals, potentially reduced to 10% under Business Asset Disposal Relief (BADR, formerly Entrepreneurs' Relief) up to a £1m lifetime cap. This guide covers what qualifies, what doesn't, and how to structure a sale efficiently.
What kind of 'sale' triggers CGT
For a sole trader: transferring the business as a going concern (client contracts, brand, intellectual property, physical assets) to a buyer for consideration is a chargeable disposal. Just stopping to trade isn't a disposal — CGT applies to what's actually transferred.
For a Ltd: selling the shares is the disposal event. Some deals are asset sales (buyer picks up assets, seller Ltd continues as a shell); others are share sales (buyer takes the whole company). Share sales generally qualify for BADR more easily; asset sales require the buyer to have specific structuring.
The BADR £1m lifetime cap
Business Asset Disposal Relief taxes qualifying disposals at 10% instead of 18-24%. Lifetime cap: £1m of gains. Reduced from £10m in 2020 — Parliament kept squeezing this over the last decade.
Qualifying conditions for a company-share disposal: the seller must be an employee/director for at least two years pre-sale, own 5%+ of ordinary shares with corresponding voting rights, and the company must be a trading company (not investment).
Structuring the disposal
Time the sale to align with a lower-income year to avoid stacking dividends and gains. Consider a phased sale (some now, some deferred) to spread the gain if it's approaching £1m. Get specialist tax advice before signing anything — post-completion restructuring is very hard.
Common mistake: taking the sale price as dividends instead of a proper capital-gains disposal. Dividends are taxed at 8.75-39.35%; a BADR-qualifying capital disposal is 10%.
Worked example
You and your co-founder each own 50% of a Ltd freelance agency. You sell to a strategic buyer for £600,000 total; your share is £300,000. Original share subscription cost: £50 (nominal). Chargeable gain: £299,950. You qualify for BADR (director + 5%+ shares + trading company + 2+ years). Tax: £299,950 × 10% = £29,995. If you didn't qualify for BADR, the same gain would attract £299,950 × 20% (higher-rate CGT) = £59,990. BADR saves £30k on this transaction.
Reference table
| Disposal type | Standard CGT rate | With BADR (if qualifying) |
|---|---|---|
| Ltd company shares (trading co, 2+ years) | 18-24% | 10% (up to £1m lifetime) |
| Sole trader business as going concern | 18-24% | 10% (up to £1m lifetime) |
| Individual assets (laptop, brand, etc) | 18-24% | May qualify if part of business disposal |
| Client list (goodwill) sold separately | 18-24% | Complex — usually taxed as income if intangible-fixed-asset regime |
| Shares held less than 2 years | 18-24% | No BADR |
Pre-sale checklist
- Confirm 2+ years as employee/director before disposal date
- Confirm 5%+ ordinary shareholding + corresponding voting rights
- Confirm company qualifies as 'trading' (not investment/property holding)
- Model gain and BADR impact in year of sale vs adjacent tax years
- Consider spousal disposal — spouse can qualify for separate £1m BADR cap
- Get pre-sale tax valuation of goodwill and IP
- Engage a corporate lawyer + tax adviser before drafting sale docs
- Retain sufficient runway for the 31 January CGT payment deadline
Same relief, renamed. The £1m lifetime cap was £10m under Entrepreneurs' Relief until 2020, when it was reduced to £1m and renamed to BADR.
Not necessarily. Selling a self-contained part of a business (e.g. a division) can qualify if it's genuinely separable. Selling individual clients or contracts one at a time usually doesn't.
Yes — up to the £1m cumulative lifetime cap. If your first disposal used £300k of the cap, you have £700k left for future disposals.
It's treated as a disposal at market value for CGT purposes. BADR may still apply. There's also potential for Gift Relief (holdover relief) to defer the gain until the recipient eventually sells.
Indirectly. If HMRC considers the company was essentially disguised employment (inside IR35), the goodwill valuation is heavily discounted — there's no real business to sell, just a payroll wrapper.
Sources & official references
Related on FreelanceToolkit UK
See also: HMRC Deadlines Calendar 2025/26 — related guide from FreelanceToolkit UK.
See also: UK Self Assessment Checklist 2025/26 — related guide from FreelanceToolkit UK.
See also: UK Tax Rates Reference 2025/26 — related guide from FreelanceToolkit UK.
Related: Tracking cost of sales as a freelancer — from FreelanceToolkit UK.
Related: Freelancer Payment Chaser Email Guide — UK 2026 — from FreelanceToolkit UK.
Related: Business credit card vs charge card for freelancers — from FreelanceToolkit UK.
Related: Self-employed vs employed tax: the practical differences — from FreelanceToolkit UK.
This guide is general information based on UK rules for the 2025/26 tax year. It is not personal tax or legal advice. For decisions affecting your tax position or legal exposure, consult a qualified accountant or solicitor.