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Key Points of Capital Gains Tax

An Example of CGT


Capital gains tax (CGT) is payable on the monetary gain between the selling price of an asset, less the purchase price, plus improvements and additions costs (not applicable to income tax), less any allowances on the sale.

You should ensure to keep records of your purchase and improvements and additions – to prove the base cost.

There are a number of reliefs and ways of operating to mitigate the extent of CGT.


Principal Private Residence (PPR) Exemption:

Your own home is not subject to CGT. It covers the periods of occupation of the property – plus the last eighteen months of ownership, even when not resident.

Point: Where PPR is proven, even where the property is then let out, PPR always applies to the last three years.

Private Residence Letting Relief (PRLR):

PRLR is given as the lowest of:


 The gain arising as a consequence of letting

 The gain already exempted under PPR.

Annual Allowance

After above reliefs have been given, an annual allowance of £11,000 is given to each individual taxpayer.

Entrepreneurs Relief

Entrepreneurs Relief applies to the purchase and disposal for gain, of business assets, and reduces taxation on the gain to 10%, from 18% or 28% for higher rate taxpayers.

Using your Home for Business Purposes (eg hotel or guest house)

If a part of your home is used exclusively for business purposes, throughout occupation, then that part is not eligible for PPR relief.

Point: Always endeavour to have some private use of every part of your property at some time, whilst it is your main residence.

Peter purchased a property in Princetown for £200,000 in 1998. It has ten bedrooms.

For the first 8 years he lived in it alone, as his principal private residence, and worked as a computer programmer in Tavistock.

He married Janet in 2006 and they opened the property as Sunnyside Guest House. Four bedrooms were let, and the couple retained 6 bedrooms for themselves.

They ran the business until 2012 and lived in the property for another couple of years, before selling it in 2014 for £650,000.

The total capital gain is thus £450,000 (£650,000 less £200,000). Relieved as follows:

Six tenths (six bedrooms out of ten) of the total is covered by Principal Private Residence Relief. That is £270,000 (£450,000 divided by ten, multiplied by six.)

The remainder of the gain of £180,000 is covered by PPR for 1998 to 2006 and for the last three years – a total of 9½  years out of 16.

That is 9½ /16 x £180,000 = £106,875.

That gives total relief of £376,875, (£270,000 + £106,875)

So from £450,000 less relief of £376,875, there is now a gain of £73,125.

This can then be offset by Private Residence Letting Relief of £80,000 (£40,000 for both Peter and Janet).

Thus the liability to CGT has been extinguished.

Both Peter and Janet have Annual Allowances of £11,000, which would come into the equation if required.


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