When selling a property, the gain for Capital Gains Tax (CGT) purposes is calculated as follows:

  1. Determine the Sale Proceeds:
    • The sale proceeds are the amount you received from selling the property. If you gave the property away or sold it for less than its market value, the market value is used instead.
  2. Deduct the Cost Basis:
    • The cost basis typically includes the original purchase price of the property and any associated purchase costs, such as legal fees and stamp duty.
  3. Subtract Allowable Expenses:
    • You can deduct certain allowable expenses from the sale proceeds. These include:
      • Costs of improvements (but not maintenance or repairs).
      • Selling costs (e.g., estate agent fees, legal fees).
  4. Calculate the Gain:
    • The gain is calculated by subtracting the cost basis and allowable expenses from the sale proceeds.

Example Calculation

Let’s consider an example to illustrate the process:

  1. Sale Proceeds: £300,000 (the amount you sold your property for).
  2. Purchase Price: £200,000 (the amount you originally paid for the property).
  3. Purchase Costs: £5,000 (legal fees and stamp duty at the time of purchase).
  4. Improvement Costs: £10,000 (costs of adding a conservatory).
  5. Selling Costs: £3,000 (estate agent fees and legal fees for selling the property).

Calculation Steps:

  1. Total Cost Basis: £200,000 (purchase price) + £5,000 (purchase costs) = £205,000
  2. Total Allowable Expenses: £10,000 (improvement costs) + £3,000 (selling costs) = £13,000
  3. Total Deductible Amounts: £205,000 (cost basis) + £13,000 (allowable expenses) = £218,000
  4. Gain: £300,000 (sale proceeds) – £218,000 (total deductible amounts) = £82,000

Key Points to Remember

  • Exemptions and Reliefs: If the property was your main residence, you might be eligible for Private Residence Relief (PRR), which could reduce or eliminate the gain subject to CGT.
  • Annual Exempt Amount: Each individual has an annual exempt amount (£12,300 for the 2023/2024 tax year), which can be deducted from the gain if PRR does not fully apply.

Professional Advice

Consult a tax advisor if you need help calculating your gain or determining your eligibility for reliefs and exemptions. They can provide tailored advice based on your specific circumstances.