Capital gains calculations - how to avoid costly errors

What’s the gain or loss?

Broadly, the capital gain or loss is the difference between the cost of the property and what you sell it for, except for properties owned either before March 1982 or April 1965 where special adjustments are required. Getting to those figures requires a close study of the paperwork provided by your solicitor or conveyancer.

Purchase cost

The cost of a property for capital gains tax (CGT) purposes includes legal and other fees (such as estate agents’), stamp duty land tax (SDLT) (or the equivalent in Scotland and Wales). Plus, the cost of any improvements made to the property, e.g. a conservatory, but only where the improvement still exists when the property is sold.

Improvements are work that goes beyond repairs and maintenance, although some major repairs might qualify as an improvement. The more improvements you can identify the lower the gain (or greater the loss) for CGT purposes.

Sale proceeds

The other main factor when working out a capital gain or loss is the sale proceeds. Again, this isn’t simply the price the buyer pays. You should deduct legal, agents’ fees, etc.

Price adjustments

For CGT purposes you must ignore any adjustments your solicitor makes to the proceeds for accrued utility and other service charges. While these might reduce or increase the purchase cost or sale proceeds they aren’t relevant for CGT purposes.

Connected purchases

If the purchase or sale of a property includes items such as furnishings, white goods etc. these too need to be ignored in your CGT calculations.

If you sell your property with furnishings, even where you haven’t specifically included a price for them in the contract, you can attribute value to them. For example, if you were to sell a second home with all the furnishings and white goods and value them at £4,000, you can knock this off the proceeds in your calculation and save yourself CGT of up to £1,120 (£4,000 x 28%).

Is the sale of contents taxable?

If you follow this advice about furnishings etc. it’s unlikely it will result in a tax bill for you as:

• furniture is CGT exempt if it has an expected life of less than 50 years; and
• a longer life expectancy is still exempt as long as the proceeds are less than £6,000; and
• machinery, e.g. a cooker, etc. (except where it’s been used in a trade) is deemed always to have an expected life of less than 50 years and so exempt.