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ACCA Strategic Professional · Advanced Taxation (UK) · Capital gains tax: the basic principles of computing gains and losses

Elena sold a rental flat for £180,000. She bought it for £100,000. She later built an extension costing £20,000, which still exists at the sale date, and spent £5,000 on redecoration. She paid £4,000 in legal and agent fees to sell. What is her chargeable gain before reliefs and the annual exempt amount?

The gain is £56,000. Proceeds of £180,000 are reduced by the £100,000 cost, the £20,000 extension that remains in place, and £4,000 selling costs. Redecoration is repair or maintenance expenditure rather than enhancement, so it is not allowable in the capital gains computation.

  1. A£56,000Correct
  2. B£51,000
  3. C£60,000
  4. D£76,000

Explanation

Allowable costs are acquisition cost £100,000, enhancement expenditure (the extension) £20,000 and incidental disposal costs £4,000. Gain = £180,000 - £100,000 - £20,000 - £4,000 = £56,000. Redecoration is revenue maintenance, not enhancement, so is not deductible; deducting it would give £51,000.

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