Terms explained

• ‘Sale price’ is the amount the buyer pays you, sometimes referred to as the ‘base cost”

• ‘Purchase price’ is the price you paid the seller

• ‘Incidental purchase’ and ‘incidental sale costs’ are defined in Section 38 Taxation of Chargeable Gains Act 1992.

Only the costs listed in the section are allowed. They are:

• Professional services costs for:

- Surveyor, valuers or auctioneers

- Accountant - Estate agents

- Legal adviser

- Costs of transfer or conveyance (including Land Duty Stamp Tax)

- Costs of advertising to find a buyer or seller • Reasonable costs for any valuation or apportionment calculations required for working out

'Improvement costs’ are additions or enhancements to the property that are still in place at the time of sale ie a new extension, garage or porch. They are not repairs or renewals of existing features ie replacing the roof, putting in a new bathroom or kitchen of the same standard as the existing fittings.

To qualify, improvement spending must be:

• Spent on the property

• Incurred to improve the asset

• Reflected in the state or nature of the asset at the date of disposal.

This means any improvement you made must still be in place at the time of disposal.

Section 38(1)(b) Taxation of Chargeable Gains Act 1992

‘Chargeable gains’ is the amount CGT is charged on

STEP 2

Next, split the chargeable gain by the number of owners pro rata their share – ie if you own the property 50:50 with a partner of spouse, then divide in half.

If you own a25% of the property and someone else owns 75%, then your share is a quarter of the chargeable amount and your partner’s is three-quarters.

Now you have a chargeable amount for each taxpayer, they can deduct:

• Their personal annual CGT exemption - £9,200 for 2008-09 and £9,600 for 2009-10

• Any available capital losses they have not been set off against other chargeable gains

STEP 3

If the amount remaining is a negative amount, then you have an allowable loss. If not, you have a chargeable gain.

Your CGT is 18% of this amount.

WORKED EXAMPLE

Alan and Nicole bought a buy-to-let property for £50,000 in April 2002. They sold it for £120,000 on April 10, 2008. They own the property jointly as tenants–in-common with a 50:50 share. Neither of them ever lived in the house as their main home. Their CGT is worked out like this: