Capital gains are the profits you make when you dispose of an asset. If you sell an asset for more than you paid for it, you have accrued capital gains. Such assets include property, shares, and other personal possessions. Capital gains are subject to tax, dependent on profit made and tax band.
Gather the information about the asset for which you wish to calculate the capital gains. You will need the price you bought the asset at and the price you sold it for, as well as the amounts spent on auxiliary expenses relating to the asset. For instance, dealing costs or costs associated with improving a property are examples of auxiliary expenses.
Begin with the figure you sold the asset for. If you gave the asset away, this figure will be the current market price for the asset.
Subtract the figure you paid for the asset. If you were given the asset, use the market value for it at the time you received it. If you received the asset before the 31st of March 1982, you need to use the market value on that date, rather than the date you received it.
Deduct any expenses that are permissible by Her Majesty's Revenue and Customs that relate to that particular asset. These may include stamp duty, conveyance fees, and money paid for advice, valuation or brokerage, and advertising costs. You can also deduct costs that improve the value of an asset, such as home improvements or reinvested share dividends. The resulting figure is your capital gains.
Add all your capital gains figures for the tax year together. Subtract any capital losses, then take away the annual tax-free allowance that the government sets. This is the amount of capital gains you can earn before tax is payable. For the tax year 2013-2014, the allowance is £10,900.
Calculate the capital gains tax payable from the resulting figure. As of 2013, capital gains tax is charged at 18 percent or 28 percent, depending on which tax band you normally pay tax in.
Fill in a tax return form and submit it to HMRC. Include the documents that detail the dates and prices you bought and sold the asset, as well receipts for additional expenditure that has been subtracted as an allowance. HMRC will review your submission and contact you about payment of capital gains tax.
If, after doing your calculations, you have a capital loss, you may be able to offset it for tax purposes against other capital gains in the same tax year.
For tax purposes, you must work out the capital gains for each asset separately.
Tips and warnings
- If, after doing your calculations, you have a capital loss, you may be able to offset it for tax purposes against other capital gains in the same tax year.
- For tax purposes, you must work out the capital gains for each asset separately.