This is a guide to how to compute a capital gain (or loss) for individuals and trustees.

At a glance

Capital gains and losses are calculated after deducting:

  • The costs of acquisition and enhancing the asset
  • Incidental costs of buying and selling, including Stamp Duty Land Tax, legal fees, agent fees etc.
  • Capital losses: current year and brought forward
  • Surplus trading losses
  • The CGT annual exemption
  • Any available tax reliefs

The rate of capital gains tax that applies will be either:

  • 18% or 28% for residential property
  • 10% or 20% for all other assets

depending on the taxpayer's other income levels and whether any CGT reliefs are available to reduce the rate of tax such as:

There are special rules for part disposals.

The gains on disposal of some assets are subject to income tax rates. See Overview and examples.

Overview and examples

See Proforma computations tab for the layout of a standard CGT computation.

Step 1: Disposal Proceeds

These are the total sales proceeds received including any deferred ascertainable consideration.

  • If the proceeds are deferred and unascertainable the amount taxed on disposal is the net present value of what might be receivable.
  • If the disposal is by way of a gift the proceeds are market value on the date of disposal.

See Selling the business: deferred consideration and earn outs                                                                                    

Step 2: Deduct selling costs   

These will include estate agents, legal and valuation fees and non-recoverable VAT.

If the property is being gifted there may also be fees incurred for valuation or legal work to transfer title.     

See CGT: deductible expenditure                                                                                                        

Step 3: Deduct acquisition costs (base cost)

In most cases this will be the price originally paid for the asset.

  • If the assety was inherited it will be probate value. See CGT and death 
  • If the asset was held as at 31 March 1982 it will be the 31 March 1982 value. There is no longer an option to replace this value with original cost (since 2008).
  • If the asset was acquired from a Connected party including where it was a gift, this will be the market value at the date of acquisition.
  • If a gift or Holdover relief claim was made on acquisition because it was a business asset or an asset being transferred into or out of a trust, the base cost will be market value at the date of acquisition less the held over gain.
  • If the asset had a gain from the disposal of a previous business asset rolled into it on acquisition the base cost will be the acquisition cost less the rolled over gain.

The base cost can also include the costs of creating an asset where one has been created, e.g. copyright.

Where there is a part disposal only a proportion of the original cost will be allowable. This is calculated by the formula:

       A              

   A + B

Where A = the disposal consideration, and B = the value of the part retained at the time of the part-disposal.

Where there has been a previous part disposal any proportion of the original cost already taken into account will not be available for deduction on later disposals.

See CGT deductible expenditure                                                                                   

Step 4: Deduct Enhancement expenditure

This is the cost of capital expenditure incurred on the asset since acquisition:

  • Spent wholly and exclusively by the taxpayer
  • for the purposes of enhancing the value of the asset
  • which is reflected in the nature and state of the asset on disposal or
  • which is wholly and exclusively incurred in establishing, preserving or defending title to, or to a right over, the asset.

E.g. The cost of successful planning applications that add value, structural improvements and pre-sale renovations, such as re-wiring, re-roofing, re-decorating, re-novations between tenancies which were disallowed for income tax.

Capital expenditure that has added no value to the asset, such as the costs of failed planning applications are non-ta deductible.

Expenses that are allowable for income tax are not deductible for CGT. For example, expenses of property letting which are an allowable deduction from rental profits such as general repairs and maintenance and insurance are not CGT deductible.          

Step 5: Deduct costs of purchase          

  • These will include legal fees, stamp duty land tax, surveyors and valuers fees and irrecoverable VAT.
  • Fees for the cost of abortive purchases are not allowable for CGT, nor are mortgage arrangement or financing fees.

If the property was acquired as a gift there may not be any purchase costs.

See CGT: deductible expenditure                                                                                                                  

Step 6: Deduct current year capital losses

Allowable capital losses which crystallise (occur) in the same tax year must be offset against a gain made in the same year before other losses, capital losses brought forward, or the CGT annual exemption may be utilised.

A loss will not be allowable if it is a 'clogged' loss. A loss is clogged if it is a capital loss made on a disposal of an asset to a Connected person. These types of losses may only be used against gains accruing on the disposal of an asset to the same person whilst the parties are still connected.                                                     

Step 7: Deduct surplus income tax losses eligible for sideways loss relief claim

An unrelieved loss of a trade, profession or vocation may also be used to offset capital gains. This is subject to restrictions:

  • The available loss is what is left after relief against general income.
  • Current year and brought forward capital losses must be utilised in full first.
  • Relief comes before the annual exemption which may then be wasted.

However the sideways loss relief cap does not apply to relief against capital gains.                                                                         

Step 8: Deduct Annual exemption

  • Each individual has their own annual exemption (AE). For 2019/20 this is £12,000,
  • For trustees this is 50% of the standard AE amount.
  • Unused AE are lost and cannot be carried forward.

Step 9: Deduct capital losses brought forward

Brought forward capital losses do not have to be used before the CGT annual exemption. A partial claim to relief can be made, to avoid wasting the AE with the remaining losses carried forward to future years.

Step 11: Apply eligible reliefs

These might include:

Step 12: Determine the rate of tax

Gains on residential property are subject to tax at 18% or 28% depending on the taxpayer’s other income levels. Higher rate taxpayers pay CGT at 28%.

Gains on other assets are subject to tax at 10% or 20% depending on the taxpayer’s other income levels. Higher rate taxpayers pay CGT on these assets at 20%.

There are a few types of asset where, although referred to as chargeable gains or chargeable events, income tax rates apply. These include:

  • Offshore income gains
  • Disposals of life insurance bonds

Step 13: Ensure applicable reliefs are claimed within the relevant time limits.

Most CGT reliefs have to be claimed on the self-assessment return and the deadline is therefore the deadline for amending the return that is, 12 months from 31 January after the end of the relevant tax year. For a disposal in 2019/20 the deadline is 31 January 2022.

The exceptions are:

  • EIS deferral relief: the deadline is 5 years from the 31 January following the end of the tax year in which the EIS investment was made.
  • SEIS reinvestment relief: deadline is five years from 31 January following the end of the tax year in which the shares were issued

Proforma computations

       

This is a proforma computation which includes potential  deductions and reliefs, some of which may not be relevant to your case. It should be used in conjunction with the step by step notes on the Overview and examples tab.

                                                                                                                                        £                                                                                                                    

Step 1: Disposal Proceeds                                                                                             X

Step 2: Deduct selling costs                                                                                          (X)

                                                                                                                                        X

Step 3: Deduct acquisition cost                                                                                     (X)

Step 4: Deduct Enhancement expenditure                                                                    (X)

Step 5: Deduct Purchase costs                                                                                     (X)

Net gain/(loss)                                                                                                                 X

Step 6: Deduct current year capital losses                                                                    (X)

Step 7: Deduct surplus income tax losses: sideways loss relief claim                          (X)

Gain before annual exemption                                                                                       X

Step 8: Deduct Annual exemption                                                                                 (X)

Gain after annual exemption                                                                                          X

Step 9: Deduct capital losses brought forward                                                             (X)

Step 11: Apply eligible reliefs                                                                                        (X)

Taxable gain                                                                                                                  X  

Step 12: Determine the rate of tax

Apply to net taxable gain after annual exemption, capital losses and reliefs

Tax due

Step 13: Ensure applicable reliefs are claimed within the relevant time limits.

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