Capital Gains and Capital Allowances
Core concepts
Capital gains arise on disposal of chargeable assets: gain = disposal proceeds − allowable cost − incidental costs − enhancement expenditure. Apply reliefs and exemptions (annual exempt amount, principal private residence relief, business asset reliefs, rollover/holdover).
Capital allowances give tax relief for capital expenditure on plant and machinery, often via a pooling system (main pool, special rate pool) with a writing-down allowance and a possible annual investment allowance for small businesses. Distinguish capital from revenue expenditure.
Traps to watch
- Part-disposals require apportionment of base cost.
- Chattels and wasting assets have special rules (exemption or restriction).
- Rollover relief defers gains only if replacement assets qualify and are acquired in the window.
- Balancing charges arise when disposal proceeds exceed pool value.
Rule of thumb
Gain = proceeds − cost − costs of disposal − enhancement; then apply exemptions/reliefs and the annual exempt amount.
Worked example: Asset bought for 50,000, sold for 80,000, selling costs 2,000, enhancement 8,000. Gain = 80,000 − 50,000 − 2,000 − 8,000 = 20,000. Deduct annual exempt amount, then tax at the applicable rate.