ACCA Strategic Professional · Advanced Taxation (UK)

Capital gains tax: the basic principles of computing gains and losses: formula sheet

Full chapter guide

Key formulas

Three tests for a CGT charge: Chargeable person + chargeable asset + chargeable disposal = chargeable gain (if any); All three must be present. If one fails, stop and explain why no CGT arises.
Disposal at market value: Gift or sale to a connected person: proceeds = market value at the date of disposal; Applies even if the person gave the asset away or sold it cheaply.
Transfers between spouses or civil partners: Disposal proceeds = acquisition cost (no gain, no loss); Applies where the couple are living together in the tax year. The receiving spouse takes over the original cost and date.
Death: No CGT on the deceased's assets at death; beneficiary's cost = probate value; Gains on assets disposed of before death are still taxable in the deceased's final year.
CGT rates 2025/26: Lower rate 18%; higher rate 24%; annual exempt amount £3,000; Given in the tax tables. Companies do not use these.
Chattel exemption: Proceeds of £6,000 or less: exempt; Marginal relief caps the gain at 5/3 × (proceeds − £6,000) for proceeds just above £6,000. Applies to non-wasting chattels.
Basic gain computation: Gain = Proceeds − incidental costs of disposal − cost − incidental costs of acquisition − enhancement expenditure; Use market value for proceeds on gifts and connected person sales.
Market value rule: Gift or sale to connected person: deemed proceeds = market value at disposal date; Spouse or civil partner living together: no gain, no loss transfer instead.
Taxable gain: Taxable gain = net chargeable gains − brought-forward losses (only as needed) − annual exempt amount; The annual exempt amount is £3,000 and is given in the tax tables.
CGT rates: Lower rate 18%; higher rate 24%; BADR and investors' relief 14%; Lifetime limit for each of BADR and investors' relief is £1,000,000.
Order of set-off: Gains − current year losses = net gains; then net gains − brought forward losses (only down to AEA) − AEA = taxable gains; Current year losses come off first and in full. Brought forward losses are used only as far as needed to leave the AEA. Connected person losses are not part of this general order. They are set only against gains on disposals to the same connected person.
Brought forward loss used: B/f loss used = lower of (net gains after current year losses − AEA) and (b/f loss available); If net gains are already at or below the AEA, use none. The loss is carried forward in full.
Annual exempt amount: AEA = £3,000; Given in the tax tables. Unused AEA cannot be carried forward or back.
CGT rates: Lower rate 18%; higher rate 24%; business asset disposal relief and investors' relief 14%; Given in the tax tables. The 14% rate applies to gains that qualify for business asset disposal relief or investors' relief. Apply losses to gains taxed at the highest rate first where you have a choice.
Connected person loss: Loss on disposal to connected person → set only against gains on disposals to the same person; Applies now and in future years. It cannot be used against any other gains, and it is not deducted in the general order of set-off.
Claim time limit (general law, not in the tax tables): Loss must be reported to HMRC within four years of the end of the tax year in which it arose; This is general law. It is not taken from the ATX-UK tax tables. If the loss is not reported in time, it cannot be carried forward.
Taxable gains: Taxable gains = Total chargeable gains − allowable losses − annual exempt amount (£3,000); The annual exempt amount cannot exceed the net gains and cannot be carried forward if unused.
CGT rates for individuals: Lower rate 18%; higher rate 24%; The lower rate applies to gains within the unused basic rate band. The higher rate applies above it.
Unused basic rate band: Unused band = £37,700 − taxable income (not below nil); Taxable income is after the personal allowance and reliefs. Gains are the top slice, so they never reduce the band available to income.
Basic rate band extension: Band is increased by gross Gift Aid donations and gross personal pension contributions; This extends the basic rate band, leaving more space for the 18% rate.
Business Asset Disposal Relief rate: 14% on qualifying gains up to £1,000,000 lifetime limit; Investors' Relief has the same rate and the same limit. Gains above the limit are taxed at 18% or 24%.
Reduced rate on qualifying gains: Qualifying gain (within lifetime limit) × 14%; 14% is the rate in the ATX-UK tax tables for this exam period. Use the rate in the tables supplied in your exam. The same rate is shown for BADR and investors' relief.
BADR lifetime limit: Limit = £1,000,000 of qualifying gains; Cumulative over your lifetime. Deduct all earlier BADR gains to find the limit left.
Investors' relief lifetime limit: Limit = £1,000,000 of qualifying gains; Separate from the BADR limit. Deduct earlier investors' relief gains only.
Gains above the limit: Excess gain × 18% or 24%; The rate depends on the basic rate band left after taxable income and the qualifying gains.
Annual exempt amount: AEA = £3,000; Set it against gains taxed at the highest rate first, to save the most tax.
BADR shares test: Officer or employee + at least 5% ordinary shares + at least 5% votes + 5% economic interest, for 2 years; Trading company, personal company. The economic-interest test means at least 5% of profits available for distribution and 5% of assets on a winding up, or 5% of the proceeds on a sale. After cessation, disposal must be within 3 years.
Investors' relief shares test: New ordinary shares + cash subscription + unlisted trading company + 3-year holding + not employee or officer; The date conditions are not in the tax tables, so check them in your study text. Shares issued on or after 17 March 2016, with the 3-year holding period starting on or after 6 April 2016 and ending on or after 6 April 2019. AIM shares are treated as unlisted.
Matching order (individuals): 1. Same day 2. Next 30 days (earliest first) 3. Section 104 pool; Apply in this order. Only shares of the same class in the same company are matched.
Gain on each matched block: Gain = Proceeds for the shares matched − Allowable cost of those shares; If a disposal is matched in blocks, split the total proceeds by the number of shares in each block.
Cost of shares sold from the pool: Cost = Pool cost × Shares sold ÷ Total shares in pool; Deduct the shares sold and the cost used from the pool. Carry the rest forward.
Bonus issue: New pool shares = old shares × bonus ratio; pool cost unchanged; Add the new shares to the pool at nil cost. No disposal arises.
Rights issue: Pool shares + new shares taken up; pool cost + cash paid; Add the shares and the cost paid to the pool. No disposal arises when the rights are taken up.

Quick revision

CGT applies to chargeable persons making disposals of chargeable assets.
Gain = proceeds less allowable costs, before reliefs and losses.
Rates are 18% and 24%. Check the tax tables for the band position.
The annual exempt amount in the tables is £3,000.
Current-year losses must be set against current-year gains in full, even if that wastes the annual exempt amount.
Brought forward losses are used only to reduce gains to the annual exempt amount.
Business asset disposal relief has a £1,000,000 lifetime limit and a 14% rate.
Investors' relief also has a £1,000,000 lifetime limit and a 14% rate.
Match shares in the correct order before computing any gain.
Use the taxpayer's taxable income to decide how much of the gain falls in the basic rate band.
State your assumptions clearly when facts are missing.
Give practical advice on timing and claims, not just figures.

Common mistakes

Charging CGT on a company's gains. Fix: Companies pay corporation tax on chargeable gains. Use CGT only for individuals, trustees and personal representatives.
Treating a gift as having no tax effect because no money was received. Fix: A gift is a disposal. Use market value as proceeds. Spouse transfers are the exception.
Using actual sale price for a gift or connected person sale. Fix: Read who the buyer is. If it is a gift or a connected person, use market value.
Deducting repairs or redecoration as enhancement expenditure. Fix: Allow only capital spending that adds value and is still reflected in the asset at disposal.
Using brought forward losses before the annual exempt amount, so the AEA is wasted. Fix: Only use brought forward losses to reduce net gains to £3,000. Deduct the AEA in your head first to find how much loss you need.
Carrying forward a current year loss instead of setting it against current year gains when the gains are low. Fix: Current year losses must be set off in full against current year gains. Only the excess loss is carried forward. The AEA can be wasted.
Using income tax rates of 20% and 40% for gains. Fix: Use the band only to measure space. Apply 18% within it and 24% above it.
Using the personal allowance twice or deducting the annual exempt amount from income. Fix: The personal allowance reduces income. The £3,000 annual exempt amount reduces gains only.
Applying the 5% test to investors' relief Fix: Investors' relief has no 5% test. It needs new shares, cash subscription, 3 years' holding and no employment or office.
Treating the £1,000,000 limit as one shared limit Fix: Keep two limits. A BADR claim does not reduce what is left for investors' relief, and the reverse also applies.

Exam tips

Always state the reason for an exemption or non-disposal. Marks go for the rule, not just the conclusion.
Watch for spouses, death and companies in the scenario. They are the usual traps in scope questions.
Use the tax tables for rates and the annual exempt amount. Do not recall them from memory.
Where a scenario involves an overseas person or asset, flag that residence needs checking and link to the overseas topics.
Write short, clear sentences for each item. Professional skills marks reward a clear, structured answer.
Underline the buyer in the question. Gift or family means market value.
Show every working. Marks go for each correct item, even if one number is wrong.
Write a short note beside each rejected cost, for example repair not enhancement. It earns marks and shows scepticism.