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ACCA Applied Skills · Taxation (UK) · The computation of capital gains tax

Marcus sold a business unit's freehold warehouse for £400,000 in December 2025. He had bought it for £250,000 and spent £40,000 on an extension, which is still reflected in the building at the sale date. He also spent £15,000 on a failed planning application to build a second warehouse, which was refused and was not reflected in the property. What is his chargeable gain?

The gain is £110,000. Enhancement expenditure is allowable only if it is reflected in the asset when sold. The £40,000 extension qualifies, but the refused planning application does not. Cost is £290,000, so the gain is £400,000 less £290,000.

  1. A£110,000Correct
  2. B£95,000
  3. C£125,000
  4. D£150,000

Explanation

Allowable cost is purchase £250,000 plus the enhancement £40,000 still reflected in the asset, giving £290,000. The failed planning application is not reflected in the asset's state at disposal, so it is not allowable. Gain = £400,000 - £290,000 = £110,000. £95,000 wrongly deducts the planning cost.

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