Capital Gains and Property Transactions
Core framework
A capital gain arises when a chargeable asset is disposed of for consideration. The basic formula is proceeds minus allowable cost, adjusted for incidental costs, enhancement expenditure and reliefs. Candidates must distinguish capital from trading or inventory transactions, identify the chargeable person, and know when a gain is realized.
Concepts to master
- Chargeable assets and disposals, including part-disposals and deemed disposals.
- Cost base: acquisition cost, transaction costs, enhancement, and apportionment.
- Reliefs: principal private residence, rollover, reinvestment, business-asset reliefs.
- Losses and their offset against gains.
- Property transfer taxes, registration duties and withholding on land.
- Non-resident gains on land and indirect disposals.
Common traps
Questions often include non-deductible costs such as repairs or personal expenses, or forget selling costs. Part-disposal requires a reasonable apportionment of the original cost. Principal-residence relief is reduced for periods of non-occupation and by business use. A gain may be taxed in the seller's hands even when proceeds go to someone else.
Worked example
A property is bought for 200,000 with 5,000 acquisition costs and sold for 320,000 with 10,000 selling costs. Enhancement of 25,000 is allowable. Gain = 320,000 − 200,000 − 5,000 − 10,000 − 25,000 = 80,000. If only half the property is sold, apportion the original cost and enhancement; do not deduct the full base.
Rule of thumb
Build a cost-base timeline and ask whether each item was capital, incurred for the asset, and still reflected in the asset.