Capital gains tax: the scope of the taxation of capital gains: formula sheet

Key formulas

Three tests for a CGT charge

Chargeable person + chargeable disposal + chargeable asset = chargeable gain

All three must be present. If one fails, there is no CGT.

Disposal at market value

Gift or sale at undervalue: proceeds = market value

Applies where the transaction is a gift or is not a bargain at arm's length. Connected-person transfers also use market value.

Gain or loss

Gain = disposal proceeds − allowable costs

Use market value as proceeds where it applies. Exempt assets give no gain and no allowable loss.

Spouse or civil partner transfers

Transfer value = base cost (no gain, no loss)

Applies where they are living together. The recipient takes over the original cost and date of acquisition.

Taxable amount

Taxable gain = chargeable gains − losses − annual exempt amount (£3,000)

Individuals only. The tax tables give CGT rates of 18% and 24%. They also give a single rate of 14% for business asset disposal relief and investors' relief, each with a £1,000,000 lifetime limit.

Chattels exemption

Exempt if proceeds ≤ £6,000

The £6,000 limit is not in the tables you are given, so remember it. Above it, the gain is limited to 5/3 × (proceeds − £6,000).

CGT rates for individuals

Lower rate 18% | Higher rate 24%

18% applies to gains within the unused basic rate band; 24% to the rest.

Annual exempt amount

AEA = £3,000

Deduct from net gains after current-year losses. Trustees normally get half, subject to the settlor sharing rule.

Taxable gain

Taxable gain = Chargeable gains − current-year losses − brought forward losses (only as needed) − AEA

Brought forward losses are used only to reduce gains down to the AEA, so the AEA is not wasted.

Unused basic rate band

Unused band = £37,700 − taxable income (not below nil)

Taxable income is after the personal allowance and reliefs. The band is extended by gross Gift Aid donations and personal pension contributions.

Tax on gains

CGT = (gains within unused band × 18%) + (remaining gains × 24%)

If there is no unused band, tax all taxable gains at 24%.

BADR and investors' relief rate

14% on qualifying gains, lifetime limit £1,000,000 each

Qualifying gains use the basic rate band first. Other gains then fall into the higher band.

Trustees

Trustees' CGT rate = 24%

No basic rate band is available to trustees.

Chargeable gain or allowable loss

Proceeds (or market value) − incidental costs of disposal − allowable cost (acquisition cost + incidental costs of acquisition + enhancement expenditure)

A negative answer is an allowable loss. Use market value for gifts and for sales to connected persons.

Current year loss rule

Net gains of the year = gains − losses of the same year

Set off in full, even if this wastes the annual exempt amount.

Brought forward loss rule

Loss used = lower of (losses b/f) and (net current gains − £3,000)

The balance is carried forward. It is never used if the net gain is £3,000 or less.

Taxable gain

Net gains after losses − annual exempt amount (£3,000)

The annual exempt amount cannot be carried forward or back.

CGT rates

18% on gains within the unused basic rate band; 24% on the rest

Work out the unused band as the basic rate band less taxable income. Business asset disposal relief gains are taxed at 14%.

Reporting and payment dates

UK residential property: 60 days from completion. Other gains: return and tax by 31 January after the tax year.

Tax paid within 60 days is a payment on account of the year's liability.

BADR and IR rate

Qualifying gain taxed at 14%

Applies to both reliefs, within the lifetime limit.

Lifetime limits

BADR: £1,000,000; IR: £1,000,000

Separate limits. Cumulative over lifetime, so deduct gains relieved before.

Gain above limit

Excess gain taxed at 18% or 24%

Rate depends on how much of the basic rate band (£37,700) is unused after taxable income and qualifying gains.

Annual exempt amount

£3,000

Set against gains taxed at the highest rate first (24%, then 18%, then 14%). If the only gains are qualifying gains, it is set against them.

Basic rate band

£37,700

Taxable income uses it first. Gains qualifying for BADR/IR are then taxed at 14% and use up any band left. Other gains are taxed at 18% within the remaining band and at 24% above it.

Relief claim

Election by taxpayer

BADR and IR are not automatic. State the need to claim in your answer.

Quick revision

• CGT applies to chargeable persons making chargeable disposals of chargeable assets.
• Check residence first: the statutory residence test table gives automatic outcomes and tie-based outcomes.
• Automatically not resident if fewer than 16 days in the UK; automatically resident at 183 days or more.
• The tie thresholds are lower for someone previously resident than for someone not previously resident.
• CGT rates are 18% (lower) and 24% (higher).
• The annual exempt amount is £3,000.
• Business asset disposal relief and investors' relief have a £1,000,000 lifetime limit and a 14% rate.
• Use your income tax position to decide how much of the basic rate band is left for gains.
• Set out every computation in a clear layout, with workings referenced.
• State the reporting deadline and any payment deadline in your answer when asked about compliance.
• Always say what you assume where the scenario is silent.
• Add short, practical advice, since professional skills marks sit alongside the technical marks.

Common mistakes

• Charging CGT on a company's gain. Fix: Companies pay corporation tax on chargeable gains. CGT applies to individuals, trustees and personal representatives.
• Treating a gift as having no tax effect because no money was received. Fix: A gift is a disposal at market value. Use market value as the proceeds, unless a relief or no gain, no loss rule applies.
• Using the income tax rates of 20% and 40% on gains. Fix: Use the band only to decide which slice is 18% or 24%. Gains never attract 20%, 40% or 45%.
• Putting gains before income when finding the unused band. Fix: Always compute taxable income first. Gains are the top slice.
• Using brought forward losses to reduce the gain to nil. Fix: Use b/f losses only to reduce the net gain to £3,000. Carry the rest forward.
• Deducting the annual exempt amount before setting off current year losses. Fix: Current year losses go first, in full. Then b/f losses to the exempt amount, then the exempt amount.
• Applying 10% or an old rate to qualifying gains. Fix: Use the rate in the tax tables: 14%.
• Treating the lifetime limit as an annual limit. Fix: Remember the limit is cumulative. Deduct earlier qualifying gains.

Exam tips

• Start every CGT answer by stating the person, the disposal and the asset. Examiners give marks for identifying why something is not chargeable.
• Write one clear line of reason for each exempt item. A bare 'exempt' earns little.
• Remember the £6,000 chattel limit and the 5/3 rule. They are not in the tax tables you are given.
• Link the scope check to the scenario. For example, say if a gift to a spouse makes tax planning possible through transfers before a sale.
• Gifts at market value can create a tax bill with no cash. Mention the cash-flow point and any holdover relief, as that shows commercial awareness.
• Set out a short layout: gains, AEA, taxable income, unused band, tax at each rate. Marks go for each step shown.
• Quote the rates from the tax tables, and state the assumption that 2025/26 figures continue if the question is silent.
• Look for Gift Aid or pension contributions in the question. They extend the basic rate band and can move gains from 24% to 18%.