How to calculate capital gains and losses on property

This guide will help you calculate your capital gains and losses if you sell or dispose of property, such as a building, land or lease in the 2013-14 tax year. There are some examples that will help you get your Capital Gains Tax right.

On this page:

Working out your capital gains or losses for 2013-14

You must 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 2013-14, you must work out each gain or loss separately. Then you can work out your overall gains or losses.

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

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Step 1: Work out how much you received

The amount received for your property is usually the sale price. This is 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 instead of the sale price. The market value is the price it might reasonably be expected to have fetched on a sale in the open market.

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. See the special rules below if the connected person is your husband, wife or civil partner. See the link below for more on 'connected persons'.

Read more about 'connected persons' in the glossary

Special rules for husbands, wives and civil partners

If you sell or dispose of a property to your husband, wife or civil partner 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.

This does not apply to other people you're connected with (for example, your brother).

This does not apply if you're separated for the whole of the year in which the disposal occurs. You must 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 helpsheet on husband and wife; civil partners - Helpsheet 281 (PDF 76K)

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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 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 made after 31 March 1982 - 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 your husband, wife or civil partner - special rules apply.
  • You inherited it after 31 March 1982 - 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.

Checking the market value

HM Revenue & Customs (HMRC) can check your valuation, to help you complete your Self Assessment tax return. To request this complete form CG34 Post Transaction Valuation Check after you've disposed of the property. Form CG34 contains the address you should send it to.

Please allow at least 2 months for HMRC to check the valuation.

Download form CG34 Post Transaction Valuation Check (PDF 44K)

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, for example, 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 2002 you bought a house for £75,000.

In May 2008 you built an extension that cost £10,000.

In August 2013 you sold the extended house for £200,000.

From the amount you sold the house for (£200,000) take away the amount you paid for it (£75,000) along with the cost of the extension (£10,000).

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

If you had sold the house for £80,000, you would 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 (for example 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

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 2013-14, 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
  • when and how to claim if you've made a loss

You must:

  • work out all of your individual gains and losses, as above, for each asset you've sold or disposed of
  • see if you have overall gains or losses to find out if you owe tax
  • work out the rates of Capital Gains Tax to apply
  • work out which gains to use your Annual Exempt Amount against

In most cases:

  1. You add together all of your gains for that tax year.
  2. You add together all of the allowable losses you've made for that tax year.
  3. You deduct the losses from the gains to work out the overall net gains or losses.
  4. If the overall net gains are below your annual tax-free allowance (known as the 'Annual Exempt Amount'), there's no Capital Gains Tax to pay.
  5. If the overall net gains are above the Annual Exempt Amount, you deduct unused allowable losses from a previous tax year. Deduct enough to reduce your gains to the Annual Exempt Amount. You can carry the rest forward to future tax years.
  6. If you have overall net gains work out which Capital Gains Tax rates apply and how to use your tax-free allowance. For 2013-14 Capital Gains Tax is charged at 18% or 28% for higher rate tax payers. Gains qualifying for Entrepreneurs' Relief are charged at 10%.
  7. If you have gains chargeable at different rates, deduct the Annual Exempt Amount in the way which minimises your tax due.

Example

Mr P's total gains in 2013-14 are £70,900.

The Annual Exempt Amount for individuals for 2013-14 is £10,900.

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

He is liable to tax on £60,000 (£70,900 - £10,900).

Mr P is a higher rate tax payer so the Capital Gains Tax rate is 28%.

He must pay Capital Gains Tax of £16,800 (£60,000 × 28%).

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

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More useful links

Shares - a step-by-step guide to working out your capital gains

Personal possessions - a step-by-step guide to working out your capital gains

Business assets - a step-by-step guide to working out your capital gains

Find out how and when to report a capital gain

Find out more about claiming a loss

Download the latest helpsheet on land and leases - Helpsheet 292 (PDF 102K)

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