Taxation (UK) · The computation of capital gains tax

How to Calculate a Chargeable Gain for CGT

Updated 11 October 2026 · Fact-checked

A chargeable gain is disposal proceeds less incidental costs of disposal, less the original cost, incidental costs of acquisition and enhancement expenditure. If the asset is gifted or sold to a connected person, use market value as the proceeds. Set the layout out in a fixed proforma and the gain follows.

Understand Calculating a Chargeable Gain

Capital gains tax taxes the profit you make when you dispose of a chargeable asset. The first job is to find that profit. It is the chargeable gain, and you find it before any reliefs, losses or the annual exempt amount.

The idea is simple. Start with what you received, and take off what the asset cost you. Both sides include the related costs. On the proceeds side you deduct the costs of selling, such as legal fees, estate agent fees and advertising. On the cost side you add the price paid, the costs of buying (legal fees, and stamp duty land tax on land) and any enhancement expenditure.

Enhancement expenditure is capital spending that adds value and is still reflected in the state or nature of the asset when you sell it. An extension to a building qualifies. Redecorating, repairs and insurance do not, because they only maintain the asset. Costs of establishing, preserving or defending legal title also count. Interest on a loan used to buy the asset is not allowable.

Sometimes there is no real arm's-length price. If you give an asset away, or sell it to a connected person (for example a relative) or otherwise not at arm's length, the proceeds are replaced by market value at the date of disposal. The person who receives the asset takes market value as their acquisition cost. Without this rule, people could avoid tax by gifting assets or selling them cheaply.

The result may be a gain or a loss. In the exam, the gain is then carried on to the rest of the CGT computation. That means the annual exempt amount of £3,000 and the rates of 18% and 24%, which are covered in the related topics.

Key rules to remember

Chargeable gain proforma: Disposal proceeds − incidental costs of disposal = net proceeds; net proceeds − (original cost + incidental costs of acquisition + enhancement expenditure) = chargeable gain (or allowable loss); Lay it out as a column of figures with a line for each item. Marks are given for each line.
Market value rule for disposals: Gift or sale to a connected person or not at arm's length: proceeds = market value at the date of disposal; Use it even if the person paid less than market value or paid nothing. Incidental costs of disposal are still deducted.
Acquirer's cost on a gift or connected-party transfer: Recipient's base cost = market value at the date of the transfer; This is the figure the recipient uses when they later sell. Transfers between spouses or civil partners living together are the exception, and are treated as no gain, no loss.
Allowable enhancement expenditure: Capital spending reflected in the state or nature of the asset at disposal, plus costs of establishing, preserving or defending title; Repairs, maintenance, insurance and loan interest are not allowable.
CGT rates and annual exempt amount (provided in the exam): Lower rate 18%; higher rate 24%; annual exempt amount £3,000; These are applied after the gain is computed. Business asset disposal relief and investors' relief have a 14% rate and a lifetime limit of £1,000,000 each.

How to solve Calculating a Chargeable Gain questions

Use the same method for every chargeable gain question. Write the proforma first and fill it in line by line.

1Identify the asset, the date of disposal and whether the disposal is a sale, a gift or a transfer to a connected person.
2Decide the proceeds. For an arm's-length sale, use the price received. For a gift, or a sale to a connected person or not at arm's length, use market value at the date of disposal.
3Deduct the incidental costs of disposal, such as legal fees, estate agent fees and advertising, to reach net proceeds.
4List the allowable costs: the original purchase price (or market value if the asset was acquired by gift), the incidental costs of acquisition and any enhancement expenditure.
5Exclude anything that is not allowable, such as repairs, maintenance, insurance and loan interest. Say briefly why you have excluded it.
6Subtract the total allowable costs from net proceeds to give the chargeable gain or allowable loss.
7Check whether the question asks you to go on to the annual exempt amount, rates or reliefs. If it does, carry the gain forward.

Quickest way: Proforma in five lines

When to use it: Use this for objective test questions and for the first part of any constructed response question, where you only need the gain.

Write the proceeds figure, replacing it with market value if the transfer is a gift or to a connected person.
Subtract the selling costs in the same line group.
Add up the purchase price, buying costs and any capital improvements.
Cross out in the question any repairs, redecoration or insurance, and do not include them.
Subtract the total costs from net proceeds and state the answer as a gain or a loss.

Common mistakes in Calculating a Chargeable Gain

Including repairs, redecoration or insurance as enhancement expenditure.
These are spending on the asset, so they feel like part of its cost.
Fix: Only capital spending that is still reflected in the asset at disposal counts. Repairs and maintenance only keep the asset as it is, so exclude them.
Using the actual price received when the asset was sold to a connected person at an undervalue.
Students read the sale price in the question and use it without checking who the buyer is.
Fix: Check the relationship first. If the buyer is a connected person or the sale is not at arm's length, use market value as the proceeds.
Forgetting to deduct incidental costs of disposal, or deducting them from the wrong side.
Costs of selling and costs of buying are both called incidental costs, so they get mixed up.
Fix: Selling costs reduce proceeds. Buying costs add to the base cost. Keep them in separate lines of the proforma.
Using the donor's original cost as the recipient's base cost after a gift.
Students carry the donor's figures forward by habit.
Fix: The recipient's cost is market value at the date of the gift. The exception is a gift between spouses or civil partners living together, which is no gain, no loss, so the original cost carries over.
Deducting the annual exempt amount inside the gain computation.
Students merge two stages of the CGT computation into one.
Fix: Finish the chargeable gain first. The annual exempt amount of £3,000 is only deducted afterwards, against total gains for the year.
Deducting interest on a loan used to buy the asset.
It is a cost of acquiring the asset in everyday terms.
Fix: Loan interest is not an allowable cost for CGT. Leave it out.

Worked examples

Example 1

Asha bought a freehold commercial unit in May 2016 for £1,20,000 and paid legal fees of £2,500. In 2019 she built an extension at a cost of £30,000, which still exists. She also spent £4,000 on redecoration. She sold the unit for £2,60,000 and paid auctioneer's fees of £5,200 and legal fees of £1,800. Compute her chargeable gain. (Amounts are in £ as TX-UK is tested in pounds.)

Show the solution

Proceeds are an arm's-length price: £2,60,000. Treat the figures as pounds, so £260,000.
Incidental costs of disposal: £5,200 + £1,800 = £7,000. Net proceeds = £260,000 − £7,000 = £253,000.
Allowable costs: purchase £120,000 + legal fees £2,500 + extension £30,000 = £152,500.
Redecoration of £4,000 is maintenance, so it is not allowable.
Chargeable gain = £253,000 − £152,500 = £100,500.

Answer: The chargeable gain is £100,500, before the annual exempt amount and any reliefs.

Example 2

Ben bought a plot of land in 2018 for £60,000 and paid legal fees of £1,500. In the current year he sold it to his brother for £70,000, when its market value was £150,000. He paid legal fees of £2,000 on the sale. Compute Ben's chargeable gain and state the base cost his brother will use on a later sale.

Show the solution

His brother is a connected person, so the sale is treated as made at market value. Proceeds = £150,000, not £70,000.
Incidental costs of disposal: £2,000. Net proceeds = £150,000 − £2,000 = £148,000.
Allowable costs: £60,000 + £1,500 = £61,500.
Chargeable gain = £148,000 − £61,500 = £86,500.
His brother's acquisition cost is market value at the date of transfer: £150,000.

Answer: Ben's chargeable gain is £86,500. His brother's base cost for a later disposal is £150,000.

Exam tips

Always lay out the proforma, even in a constructed response question where only part of it is needed. Marks are given for each correct line, so a labelled layout protects you from losing all marks for one error.
Read the question for the relationship between buyer and seller. Words such as brother, sister, son, company controlled by or gift are signals to use market value.
In objective test questions, one option is often the answer you get by including a repair or using the sale price. Work through the proforma before you look at the options, because answers are all or nothing.
Explain in a short note why you exclude an item, for example repairs. In a constructed response question this earns the mark for the item even though the figure is nil.
Remember that the figures you are given for tax rates, the annual exempt amount and relief limits are in the exam. You do not need to memorise them, but you do need to know when to apply them.

Practice questions from The computation of capital gains tax

Calculating 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.

ACCA Strategic ProfessionalComputing Company Chargeable Gains and Indexation

Calculating a Chargeable Gain: frequently asked questions

What costs can I deduct when calculating a chargeable gain?

You can deduct incidental costs of disposal from the proceeds. You can then deduct the original cost, the incidental costs of acquisition and enhancement expenditure. Repairs, maintenance, insurance and loan interest are not allowable.

When do I use market value instead of the actual sale price?

Use market value when the asset is gifted, or when it is sold to a connected person or otherwise not at arm's length. The person disposing is treated as if they received market value, even if they received less or nothing.

What base cost does the person who receives a gift use?

Their acquisition cost is market value at the date of the gift. The exception is a transfer between spouses or civil partners living together. That is no gain, no loss, so the recipient takes over the donor's original cost.

What is the difference between enhancement expenditure and repairs?

Enhancement expenditure is capital spending that improves the asset and is still reflected in it when it is sold, such as an extension. Repairs and redecoration only maintain the asset, so they are not allowable for CGT.

Is the annual exempt amount deducted when computing the chargeable gain?

No. You compute the gain first. The annual exempt amount of £3,000 is deducted later, from total net gains for the tax year, before the CGT rates of 18% and 24% are applied.