Capital Gains Tax / Lesson 2 of 7
Working out the gain
Sold for £40,000, bought for £25,000. The taxable gain is neither £40,000 nor £15,000.
The short answer
- ✓ The gain is proceeds less buying and selling costs, cost and improvements
- ✓ Improvements count only if still reflected in the asset at sale
- ✓ The annual exempt amount cannot be carried forward
- ✓ You must be able to evidence your acquisition cost, however long ago
The calculation
Disposal proceeds £40,000
Less costs of selling -£900
Less acquisition cost -£25,000
Less costs of buying -£600
Less enhancement expenditure -£3,200
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GAIN £10,300
Less annual exempt amount -£3,000
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TAXABLE GAIN £7,300What counts as an allowable cost
| Cost | Deductible? |
|---|---|
| What you originally paid | Yes |
| Stamp duty on purchase | Yes |
| Legal and survey fees, both ends | Yes |
| Estate agent or broker fees on sale | Yes |
| Improvements still reflected in the asset | Yes |
| Repairs and maintenance | No |
| Mortgage interest | No |
| Insurance and running costs | No |
| Your own time and labour | No |
Enhancement expenditure has a condition
Improvements only count if they are still reflected in the asset when you sell it. A conservatory you added and later removed does not count. A kitchen you fitted twenty years ago and replaced since does not count either, because the current value reflects the newer one.
The annual exempt amount
Every individual has an annual exempt amount of £3,000, applied to total gains for the year. It cannot be carried forward: unused, it is simply gone on 6 April.
That gives a simple planning point. Where a disposal can straddle two tax years, for example selling shares in two tranches, two exempt amounts become available instead of one.
The bit HMRC does not spell out
The burden of proving your acquisition cost is entirely yours, and there is no time limit on how far back it reaches. Someone selling a property bought thirty years ago needs evidence of what they paid and what they spent improving it, and "I think it was about £60,000" is not evidence.
Keep purchase paperwork and improvement receipts for as long as you hold the asset, plus the years afterwards. This is the single most valuable filing habit in this course, and the one people only regret at the point of sale.
Common mistakes
- Deducting repairs. Only improvements still reflected in the asset count.
- Forgetting buying costs. Stamp duty and legal fees reduce the gain.
- Losing the paperwork. The burden of proof is yours, indefinitely.
- Wasting the annual exempt amount. It cannot be carried forward.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Your gain
Used to work out how much of your gain falls in the basic-rate band.
Capital Gains Tax
on a net gain · effective rate
- Net gain
- Tax-free allowance (AEA)
- −
- Taxable gain
- at
- at
- Gain after tax
What this means
Estimate only - not tax advice. Reliefs (Private Residence Relief, BADR, gifting to a spouse) can change this. rates.
What this means for you
Do this next, in order
Estimates only - not financial or tax advice. Confirm figures on GOV.UK or with an adviser.
CGT as your gain grows
Based on your current income and asset type. The marker shows your gain.
Compare saved scenarios
| Scenario | Net gain | CGT | Kept | |
|---|---|---|---|---|
Key takeaways
- ✓ The gain is proceeds less buying and selling costs, cost and improvements
- ✓ Improvements count only if still reflected in the asset at sale
- ✓ The annual exempt amount cannot be carried forward
- ✓ You must be able to evidence your acquisition cost, however long ago
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. Which of these reduces your capital gain?
2. You added a conservatory and later removed it. Does it reduce the gain?
3. You did not use your annual exempt amount this year. What happens to it?
Sources
Finished this lesson?
Mark it done and we will remember where you got to.
