Taxation (UK) · The basic principles of computing gains and losses

How to Compute a Chargeable Gain in ACCA TX-UK

Updated 11 October 2026 · Fact-checked

A chargeable gain is disposal proceeds less incidental costs of disposal, less the allowable cost, incidental costs of acquisition and enhancement expenditure. If the asset is gifted, or sold to a connected person, use market value instead of actual proceeds. Work down the proforma in order, then deduct losses and the annual exempt amount.

Understand Computing a Chargeable Gain

A capital gain is the profit you make when you dispose of a chargeable asset. You do not tax the whole sale price. You tax the increase in value over what the asset cost you, after allowing certain expenses.

The computation always follows the same layout. Start with the disposal proceeds. Deduct the incidental costs of disposal, such as legal fees, estate agent fees, valuation fees and advertising. That gives net proceeds. Then deduct the allowable cost: the price paid, plus the incidental costs of buying, such as legal fees and stamp duty. Finally deduct enhancement expenditure.

Enhancement expenditure is money spent that adds to the value of the asset and is still reflected in the asset when you sell it. An extension to a building is an example. Repairs, maintenance and insurance are not enhancement. They are not deductible. Interest on a loan used to buy the asset is not deductible either.

Sometimes the actual price is not used. If you gift an asset, or sell it to a connected person (or otherwise not at arm's length), you are treated as receiving the market value at the date of disposal. This stops people avoiding gains by giving assets away or selling them cheaply. The person who receives a gift takes market value as their own cost.

The result is the chargeable gain. Losses and the annual exempt amount come after this. The annual exempt amount for the exam is £3,000, and gains are taxed at 18% or 24% depending on the taxpayer's income.

Key rules to remember

Chargeable gain proforma: Proceeds − incidental costs of disposal = net proceeds; net proceeds − (cost + incidental costs of acquisition + enhancement expenditure) = chargeable gain; Keep each line separate in the exam so you pick up method marks.
Market value rule: Gift or sale to a connected person (or not at arm's length): proceeds = market value at date of disposal; Use market value even if the person paid less, or nothing.
Cost of an asset received by gift: Cost = market value at the date of the gift; This is the recipient's base cost when they later sell.
Taxable gain after the annual exempt amount: Net gains − current year and brought forward losses − annual exempt amount (£3,000); Exempt amount is given in the tax rates and allowances. Rates are 18% and 24%.

How to solve Computing a Chargeable Gain questions

Use this layout for any gain question. It keeps your answer easy to mark and stops you missing costs.

1Identify the asset and the date and type of disposal: sale, gift or sale to a connected person.
2Decide the proceeds. Use actual proceeds for an arm's length sale. Use market value for a gift or a sale to a connected person.
3Deduct incidental costs of disposal (legal, estate agent, valuation, advertising) to get net proceeds.
4Work out the cost: price paid (or market value if the asset was received as a gift) plus incidental costs of acquisition.
5Add enhancement expenditure that is still reflected in the asset. Leave out repairs, maintenance, insurance and loan interest.
6Subtract total costs from net proceeds to find the gain or loss.
7If the question asks for tax, deduct losses and the £3,000 annual exempt amount, then apply 18% or 24%.

Quickest way: Three-line scan for gain questions

When to use it: Use when time is short in a Section B or Section C question with several costs listed.

Read the question once and tick each cost as 'sale side', 'purchase side', 'enhancement' or 'ignore'.
Check the buyer or recipient. If connected or a gift, cross out the price and write market value.
Do two sums: net proceeds, then total cost. Subtract. Do not mix them in one line.

Common mistakes in Computing a Chargeable Gain

Using the actual price when the asset was gifted or sold to a connected person for less than market value.
The price is in the question and looks like the obvious figure.
Fix: Check who the buyer is first. If it is a gift or a connected person, use market value.
Deducting repairs, maintenance or insurance as enhancement expenditure.
These are real costs of owning the asset.
Fix: Only deduct spending that adds to the asset and is still reflected in it on sale. Repairs are not.
Forgetting incidental costs of acquisition or disposal.
They are often hidden in a sentence about fees.
Fix: Scan for legal fees, agent fees, valuation fees and stamp duty and place each on the correct side.
Deducting loan interest as a cost of the asset.
Students link borrowing to buying the asset.
Fix: Interest is never an allowable cost in the gain computation.
Deducting the annual exempt amount before finding the gain for an individual asset, or deducting it from a loss.
The order of the steps is mixed up.
Fix: Find each gain or loss first. Deduct losses, then the £3,000 annual exempt amount from the total.

Worked examples

Example 1

Anna sold a commercial building in June 2025 for £480,000. She paid legal fees of £6,000 and estate agent fees of £4,800 on the sale. She bought it in 2015 for £210,000 and paid legal fees of £3,500. In 2018 she built an extension costing £60,000, and in 2020 she spent £8,000 on repairs. Compute her chargeable gain.

Show the solution

Proceeds: £480,000.
Incidental costs of disposal: £6,000 + £4,800 = £10,800. Net proceeds = £480,000 − £10,800 = £469,200.
Cost: £210,000 + £3,500 legal fees = £213,500.
Enhancement expenditure: the extension £60,000 is allowable. The repairs £8,000 are not.
Total allowable costs: £213,500 + £60,000 = £273,500.
Gain: £469,200 − £273,500 = £195,700.

Answer: The chargeable gain is £195,700, before losses and the annual exempt amount of £3,000.

Example 2

Raj sold a plot of land to his brother for £60,000 in August 2025. The market value at that date was £150,000. Raj paid legal fees of £2,000 on the sale. He bought the land in 2010 for £40,000 and paid £1,500 in acquisition costs. Compute Raj's chargeable gain.

Show the solution

A brother is a connected person, so market value replaces the price paid. Proceeds = £150,000.
Incidental costs of disposal: £2,000. Net proceeds = £150,000 − £2,000 = £148,000.
Cost: £40,000 + £1,500 = £41,500.
Gain: £148,000 − £41,500 = £106,500.

Answer: The chargeable gain is £106,500. The £60,000 actually paid is ignored.

Exam tips

In Section C, show each line of the proforma separately. Marks are given for proceeds, each cost and the final gain.
Objective test questions on this topic are all or nothing. Check whether the buyer is connected or whether the asset was a gift before you calculate.
Mark every cost in the scenario as allowable or not. Repairs, insurance and loan interest are common traps.
If the question says the asset was received as a gift, use the market value at the date of the gift as the cost.
Finish by stating the chargeable gain clearly. Only go on to tax if the question asks for it.

Practice questions from The basic principles of computing gains and losses

Computing a Chargeable Gain in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Computing a Chargeable Gain: frequently asked questions

What is the proforma for a chargeable gain in TX-UK?

Start with disposal proceeds and deduct incidental costs of disposal. Then deduct the cost, incidental costs of acquisition and enhancement expenditure. The balance is the chargeable gain or allowable loss.

When do you use market value instead of the actual price?

Use market value at the date of disposal when the asset is gifted, or sold to a connected person or otherwise not at arm's length. For a gift, the recipient also takes market value as their cost.

What counts as enhancement expenditure?

It is spending that adds to the value of the asset and is still reflected in the asset when you dispose of it, such as an extension. Repairs and maintenance do not count.

Are incidental costs of buying and selling both deductible?

Yes. Costs such as legal fees, estate agent fees and valuation fees are deducted on the sale side. The costs of buying, including legal fees and stamp duty, are added to the cost.