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Capital Gains Tax on property: the basics
Capital Gains Tax reliefs on property
How to calculate capital gains and losses on property

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How to calculate capital gains and losses on property

How to calculate capital gains and losses on property

This step-by-step guide will help you calculate your capital gains and losses if you sell or dispose of property, such as a building, land or lease for the 2008-09 tax year. There are some easy to understand examples that will help you get your Capital Gains Tax right.

On this page:

Working out your capital gains or losses for 2008-09
Step 1: Work out how much you received
Step 2: Work out how much your property cost
Step 3: Work out how much you spent to buy, sell or improve the property
Step 4: Work out the gain or loss so far
Step 5: Apply tax reliefs
Step 6: Work out your Capital Gains Tax bill
If you sold your property before 6 April 2008
More useful links

Working out your capital gains or losses for 2008-09

You have to work out the gain or loss separately when you sell, give away, exchange or otherwise dispose of property. This step-by-step guide explains how to do that in straightforward cases.

If you sell or dispose of other types of assets in 2008-09, you must work out each gain or loss separately too, before you can work out your overall gain or loss.

You can find help on working out capital gains on shares, personal possessions and business assets in the 'More useful links' section at the bottom of this page.

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Step 1: Work out how much you received

The amount received for your property is usually the sale price, eg the amount of money you got for the property when you sold or disposed of it.

However, sometimes you need to use the market value of the property (the price it might reasonably be expected to have fetched on a sale in the open market) instead of the sale price.

When to use market value - some examples

You use the market value of the property instead of the sale price if, for example:

You give the property away.
You intentionally sell or dispose of the property for less than it's worth.
You sell or dispose of the property to a ‘connected person’, such as a close relative or a company you control. But see the special rules below if the connected person is a husband, wife or civil partner and the link below for more on 'connected persons'.

Special rules for husbands, wives and civil partners

Your husband, wife or civil partner is a person you're connected with. But unlike other people you're connected with (eg your brother), if you sell or dispose of a property to them you usually won't have to pay any Capital Gains Tax on that disposal. You must have lived together for at least part of the tax year in which you make the disposal.

If you're separated for the whole of the year in which the disposal occurs, you must work out the gain or loss and use the market value of the property disposed of at the date of disposal as the amount received.

See more on gifts, separation and divorce

Download the latest help sheet on husband and wife; civil partners - Help Sheet 281 (PDF 66K)

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Step 2: Work out how much your property cost

The cost of your property is normally the amount you paid for the land, building or lease when you bought or acquired it.

However, sometimes you may need to use the market value of the property (the price your property might reasonably be expected to have fetched on a sale in the open market) instead of the cost.

Using market value - some examples

You use the market value of the property instead of the cost if:

You owned the property at 31 March 1982 - you use its market value on that day.
It was a gift - you use its market value when it was given to you, unless there's been a claim for Gift Hold-Over Relief (see the link below). Or see the section below if it was a gift from a husband, wife or civil partner - special rules apply.
You inherited it - you use its market value on the date of death of the person who left it to you.

Read about reliefs including Gift Hold-Over Relief

Special rules for husbands, wives and civil partners

If you received a property from your husband, wife or civil partner when you were living together, you usually use the amount the property cost them.

But if your husband, wife or civil partner owned the property at 31 March 1982, you use the market value on that day instead.

If your husband, wife or civil partner originally acquired the asset before 1 April 1998 and transferred it to you before 6 April 2008, you may be entitled to Indexation Allowance. This takes inflation into account and may reduce your tax bill.

Checking the market value

If you want HM Revenue & Customs (HMRC) to check your valuation, to help you complete your Self Assessment tax return, you should complete and send form CG34 Post Transaction Valuation Check to your Tax Office after you've disposed of the property.

Please allow at least two months for HMRC to check the valuation.

Go to form CG34 Post Transaction Valuation Check

See more on 1982 values on the Valuation Office Agency website (Opens new window)

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Step 3: Work out how much you spent to buy, sell or improve your property

If you've spent extra money to buy, sell or improve your property, you can deduct certain costs.

Costs you can deduct include:

fees or commission for professional advice or services, eg Capital Gains Tax valuations, solicitors' and estate agent or advertising fees
improvement costs to increase the value of the property - but not normal maintenance costs such as repairs or decorating
Stamp Duty Land Tax and VAT (unless you can reclaim the VAT)

Find out more about reclaiming VAT

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Step 4: Work out the gain or loss so far

You now need to work out the gain or loss on the property so far.

Example

In June 1999 you bought a house for £75,000.

In May 2005 you built an extension that cost £10,000.

In June 2008 you sold the extended house for £200,000.

To work out the gain or loss, take the amount you sold the house for (£200,000) and subtract the amount you paid for it (£75,000) along with the cost of the extension (£10,000).

This means your gain before applying any reliefs is £115,000 (£200,000 - £75,000 - £10,000 = £115,000).

If you'd sold the house for £80,000, you'd have made a loss of £5,000 instead (£80,000 less £85,000 costs).

Find out more about claiming a loss

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Step 5: Apply tax reliefs

If you've worked out that, so far, you've made a gain, there are tax reliefs that may reduce that gain.

The following reliefs may be available:

Private Residence Relief - if you sell or dispose of your own home - it usually means that you don’t pay Capital Gains Tax on the gain you make
Business Asset Roll-Over Relief - if you sell or dispose of business assets (eg farmland that you farm) and reinvest the amount you received in certain other business assets
Entrepreneurs’ Relief - if you sell or dispose of a property that's a business asset
Gift Hold-Over Relief - if you make a gift of a property that's a business asset

More on Capital Gains Tax relief on your own home

Capital Gains Tax reliefs for business assets

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Step 6: Work out your Capital Gains Tax bill

Through steps 1 to 5, you've worked out the gain or loss on a property and applied reliefs.

If you sell or dispose of other assets in 2008-09, you must repeat these steps to work out the separate gain or loss for each asset.

See the 'More useful links' section below for help on working out gains and losses on other types of assets and for guidance on when and how to claim if you've made a loss.

Once you've worked out all of your individual gains and losses, as above, for each asset you’ve sold or disposed of, you'll need to work out the overall gain or loss to see the tax due.

In most cases:

You add together all of your gains for that tax year.
You add together all of the allowable losses you've made for that tax year.
You deduct the losses from the gains to work out the overall gain or loss.
If the overall gain is below your annual tax-free allowance (known as the ‘Annual Exempt Amount’), there's no Capital Gains Tax to pay.
If the overall gain is above the Annual Exempt Amount, you can deduct unused allowable losses from a previous tax year to reduce your gains to the Annual Exempt Amount. You can carry the rest forward to future tax years.
If the overall gain is still above the Annual Exempt Amount, you deduct the Annual Exempt Amount and pay tax at 18 per cent on the balance.
If you've made a loss - check out the time limits for claiming it - see the 'More useful links' section below.

Find out more about the annual tax-free allowance

Example

Mr P's total gains in 2008-09 are £70,600.

The Annual Exempt Amount for individuals for 2008-09 is £9,600.

Mr P's gains are above this amount - so he deducts the Annual Exempt Amount from his gains.

He is liable to tax on £61,000 (£70,600 - £9,600 = £61,000).

The Capital Gains Tax rate is 18%.

He must pay Capital Gains Tax of £10,980 (£61,000 × 18%).

Look up Capital Gains Tax rates and annual tax-free allowances

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If you sold your property before 6 April 2008

Different rules applied if you sold or disposed of property before 6 April 2008.

How to calculate capital gains on property sold in 2007-08

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