How Capital Gains Tax Works When You Sell a Hospitality Business
When you sell a hotel, B&B, guest house, inn, pub with rooms, restaurant or holiday-let business for more than it cost you, the profit is a capital gain and UK Capital Gains Tax is charged on it. The tax is not charged on the sale price — it is charged on the gain, which is the sale price less everything you are allowed to deduct: the original purchase price, the costs of buying, the costs of selling and any capital improvements still reflected in the asset. From that gain you deduct any reliefs you qualify for, any capital losses and the annual exempt amount, and what remains is the taxable gain. The rate applied to it depends on two things: whether the gain qualifies for Business Asset Disposal Relief, and how much of your basic rate income tax band is left after your other income for the year. The calculator above performs exactly those steps from the figures you enter.
Capital Gains Tax Formula
Gain = Sale Price − Purchase Price − Costs of Buying − Costs of Selling − Capital Improvements
Taxable Gain = Gain − Private Residence Relief − Capital Losses − Annual Exempt Amount (£3,000)
CGT = (BADR gain × BADR rate) + (gain within remaining basic rate band × 18%) + (gain above the band × 24%)
Take an illustrative example — not a valuation or a benchmark. A sole owner sells a guest house for £1,200,000 that was bought for £700,000, with £25,000 of buying costs, £30,000 of selling costs and £45,000 spent adding two letting bedrooms. The gain is £1,200,000 − £700,000 − £25,000 − £30,000 − £45,000 = £400,000. After the £3,000 annual exemption the taxable gain is £397,000. If the whole gain qualifies for BADR and the sale exchanges in 2026/27, the tax is £397,000 × 18% = £71,460. Without BADR, with other income of £30,000 leaving £20,270 of basic rate band, the tax would be £20,270 × 18% + £376,730 × 24% = £94,063.80 — so the relief saves £22,603.80 on this sale.
What Counts as an Allowable Cost
Allowable costs reduce the gain pound for pound, so it pays to gather them properly before you sell. The acquisition cost is what you paid, or the market value at the date you inherited or were gifted the business. Incidental costs of acquisition include stamp duty land tax (or LBTT and LTT), legal fees, survey and valuation fees and agent's fees paid when you bought. Incidental costs of disposal include the business transfer agent or broker's commission, legal fees and marketing costs of the sale. Enhancement expenditure is capital spending that is still reflected in the asset at sale — an extension, converting outbuildings into letting rooms, a new commercial kitchen. Ordinary repairs, redecoration and replacements that were deducted from trading profits as revenue expenses cannot be deducted again, and neither can the cost of your own time. If part of the price is for goodwill, fixtures, stock or a company's shares rather than the property, the apportionment matters, and that is a job for your accountant.
Business Asset Disposal Relief Explained
Business Asset Disposal Relief — BADR, formerly Entrepreneurs' Relief — is the single most valuable relief for a hospitality owner who has run their own business. It reduces the rate of CGT on qualifying gains up to a lifetime limit of £1 million. For a sole trader or partner, the disposal must be of the whole or a distinct part of a trading business you have owned for at least two years before the sale, and the assets sold must have been used in that business. For a company owner, the relief applies to shares in your personal trading company where, for two years before the sale, you held at least 5% of the ordinary shares and voting rights, were entitled to at least 5% of profits or proceeds, and were an officer or employee. The rate has been rising: 10% for disposals up to 5 April 2025, 14% for disposals in 2025/26, and 18% for disposals from 6 April 2026. Any gains you claimed Entrepreneurs' Relief or BADR on in the past count towards the £1 million lifetime limit, which is why the calculator asks how much you have already used.
Is BADR Still Worth Claiming at 18%?
Yes, but the arithmetic has changed. When the relief was 10% against a main rate of 20%, it halved the bill. From April 2026 the BADR rate equals the 18% basic rate, so the relief now only saves the difference between 24% and 18% on the part of the gain that would otherwise be taxed at the higher rate — six percentage points, worth at most £60,000 on the full £1 million lifetime allowance. For a small gain that would fall entirely within your unused basic rate band, BADR saves nothing at all. The year-by-year comparison in the calculator makes this visible: the same disposal that cost £40,000 in tax at 10% costs £72,000 at 18%. Owners who exchanged contracts before the rate rises benefited from the lower rates; anti-forestalling rules prevent arrangements made afterwards from being back-dated to secure them.
The Annual Exempt Amount
Every individual has an annual exempt amount — £3,000 since 6 April 2024, down from £12,300 in 2022/23 — which is deducted from gains before tax is calculated. It cannot be carried forward, so it is lost if unused. Where a business is owned jointly, each owner has their own exemption, their own share of the gain and their own rate bands, which is why the calculator asks for your share and why couples who own a B&B together should each run their own figures. The exemption is deducted after capital losses of the same year but, where losses are brought forward from earlier years, only enough of those losses is used to bring the gain down to the exemption.
How Your Other Income Sets the Rate
Capital gains are taxed as if they sat on top of your income for the year. The basic rate band is £37,700 above the £12,570 personal allowance. If your taxable income — salary, trading profits, pension and rental income — leaves part of that band unused, that much of the gain is taxed at 18% and the rest at 24%. In the year you sell, trading profits up to the date of sale still count as income, and a large final year can push the whole gain into the 24% rate. Gains that qualify for BADR are treated as using the basic rate band before other gains, so they do not free up the 18% band for the non-qualifying part. Scottish and Welsh taxpayers use the same UK-wide bands and rates for CGT, because it is not a devolved tax.
Selling a Hotel or B&B You Also Live In
Many hospitality properties are also the owner's home — the flat above the pub, the private wing of a guest house, the farmhouse next to the campsite. The part that has been your only or main residence throughout your ownership can qualify for Private Residence Relief, so the gain is apportioned between the residential and business parts and only the business part is taxable. The split depends on floor area, exclusive business use and periods of occupation, and it is one of the most common areas of dispute with HMRC, so ask your accountant for the percentage rather than estimating it, then enter it in the calculator. Where any part of the gain relates to UK residential property and is not fully relieved, that part must be reported and the tax paid within 60 days of completion, separately from the Self Assessment deadline.
Selling Business Assets vs Selling Company Shares
If you trade as a sole trader or partnership, you sell the assets — property, goodwill, fixtures — and the gain is yours personally. If you trade through a limited company you have a choice. On a share sale you sell the company itself; the gain is yours, BADR can apply, and the buyer takes on the company's history. On an asset sale the company sells the property and goodwill, pays corporation tax on its gain, and you then pay further tax extracting the proceeds as dividends or on liquidation — two layers of tax instead of one, which is why sellers usually prefer a share sale and buyers often prefer an asset sale. This calculator estimates the personal CGT on either a direct asset disposal or a share disposal; it does not model corporation tax on a company's asset sale. The structure should be settled with your accountant before the business is marketed, because it affects the price a buyer will pay.
Jointly Owned Businesses and Partnerships
In a partnership each partner is taxed on their own share of the gain according to the partnership's capital-sharing ratio. Spouses and civil partners who own the property jointly are each taxed on their share — normally half — and each has their own annual exemption, basic rate band and BADR lifetime limit. Transfers between spouses are made at no gain and no loss, so ownership can be equalised before a sale, but a transfer made purely to obtain BADR needs the recipient to meet the two-year ownership and involvement conditions in their own right. Enter your own share in the calculator and run it separately for each owner with their own income figure; the totals will differ where incomes differ.
Timing a Sale Around the Rate Changes
For CGT the date of disposal is normally the date contracts become unconditional — usually exchange — not completion. That fixes the tax year, the rates and the reliefs that apply. With the BADR rate stepping from 10% to 14% to 18%, a £600,000 qualifying gain cost £60,000 in tax if exchanged before 6 April 2025, £84,000 in 2025/26 and £108,000 from April 2026. Those earlier years are now closed, and the comparison table exists to show the effect of timing rather than to suggest it can be recovered. Looking forward, the practical timing questions are about your income: a sale that exchanges early in a tax year when your trading income will be low leaves more basic rate band for the gain, and an owner who has already stopped trading may have very little income to set against it.
Reporting and Paying Capital Gains Tax
Gains on business assets and shares are reported on your Self Assessment tax return for the year of sale, and the tax is due by 31 January following the end of that tax year — so a sale exchanged in June 2026 is reported on the 2026/27 return and paid by 31 January 2028. BADR must be claimed on the return, or separately in writing, by the first anniversary of that 31 January. Any residential element not covered by Private Residence Relief must be reported through HMRC's online property account and the tax paid within 60 days of completion. Losses, too, must be claimed to be carried forward, normally within four years of the end of the tax year in which they arose. Keep the completion statement, the purchase documents, invoices for improvements and the agent's and solicitor's bills — HMRC can ask for them.
Other Taxes That Can Arise on a Sale
Capital Gains Tax is rarely the only tax in a hospitality sale. Where the business is sold as a going concern with the buyer registered for VAT, the transfer is normally outside the scope of VAT, but the conditions are strict and a mistake can add 20% to the price. Fixtures and equipment on which capital allowances were claimed can produce a balancing charge or allowance, and stock is taxed as trading income. If a company sells its assets, corporation tax applies to the company's gain before any personal tax. The buyer pays stamp duty land tax, LBTT or LTT on the purchase, which affects what they can afford to offer — the Stamp Duty Calculator shows how much. None of these are included in this calculator's estimate.
Limitations of This Estimate
Every figure is calculated from the numbers you enter using the published rates and allowances for the tax year you select. The calculator cannot verify that you qualify for Business Asset Disposal Relief or Private Residence Relief, does not apportion a mixed-use property for you, ignores the tapering of the personal allowance above £100,000 of income (which does not change the result because the basic rate band is already used up at that level), and does not model corporation tax, VAT, capital allowances, Investors' Relief, holdover or rollover relief, deferred consideration, earn-outs or non-UK residence. Tax rates and allowances change at each Budget. Treat the output as a planning estimate that shows the arithmetic, and have the real figures reviewed by a qualified accountant or chartered tax adviser before you agree a price or exchange contracts.
Related Stay4Hospitality Tools
Capital gains tax is one part of planning an exit. Check whether the business is ready to sell with the Exit Readiness Score, build the plan with the Exit Strategy Planner, and estimate what the business might fetch with the Property Valuation and the Market Comparison Tool. Strengthen the trading figures buyers will pay for with the Hotel Revenue Calculator and the Profit Predictor, and see what the buyer's side of the transaction costs with the Stamp Duty Calculator and the Finance Affordability Checker. Read the free hospitality selling guide, and when you are ready, list your property on Stay4Hospitality and present it directly to buyers and investors.