How to Calculate a Capital Gain

Key facts

The basic formula is: Proceeds − Allowable costs = Gain (or loss).
Deduct the Annual Exempt Amount (£3,000 for 2025/26) before calculating the tax.
Current-year capital losses must be deducted before the AEA; brought-forward losses are used only to reduce gains to nil.
The CGT rate depends on your total taxable income and which band the gain falls into.
Where you sell to a connected person, market value replaces the actual proceeds.

The Basic CGT Formula

The starting point for every CGT calculation is the same:^[1]

Disposal proceeds − Allowable costs = Gain (or loss)

If the result is positive, you have a chargeable gain. If negative, you have an allowable loss that can be used to offset other gains.

Step-by-Step Calculation

The full process for calculating your CGT liability for a tax year is:^[2]

Calculate each gain or loss: For every disposal in the tax year, compute proceeds minus allowable costs
Aggregate gains and losses: Add up all gains and all losses
Deduct current-year losses: Set current-year losses against current-year gains (mandatory, even if this takes you below the AEA)
Deduct the Annual Exempt Amount: Subtract £3,000 (2025/26)
Deduct brought-forward losses: Use losses from earlier years only to reduce the net gain to nil
Apply the CGT rate: Tax the remaining gain at 18% or 24% depending on your income level

Disposal Proceeds

The disposal proceeds are normally the sale price you received. However, in certain situations the proceeds are different:^[2]

Situation	Proceeds Used
Arm’s length sale	Actual sale price
Gift (no payment)	Market value at date of gift
Sale to connected person	Market value at date of sale
Sale at undervalue to connected person	Market value at date of sale
Insurance payout for destroyed asset	Insurance amount received
Compensation received	Compensation amount

Allowable Costs

The costs you can deduct fall into three categories:^[3]

Category	Examples
Acquisition costs	Purchase price, stamp duty, legal fees on purchase, survey costs
Enhancement expenditure	Costs of improving the asset (extensions, renovations) — but NOT maintenance or repairs
Incidental costs of disposal	Estate agent fees, solicitor fees, advertising costs, valuation fees

Tip: Keep receipts and records of all expenditure on assets you may eventually sell. Costs of maintenance and repair are not allowable for CGT — only expenditure that enhances the value of the asset or is incidental to acquisition or disposal.^[3]

Worked Example: Selling Shares

James bought 1,000 shares in XYZ plc for £5 each in 2018 and sells them all for £15 each in January 2026. His taxable income for 2025/26 is £45,000 (above the basic-rate band).

Step	Calculation	Amount
Disposal proceeds	1,000 × £15	£15,000
Less: acquisition cost	1,000 × £5	−£5,000
Less: dealing charges (buy & sell)		−£50
Gain		£9,950
Less: Annual Exempt Amount		−£3,000
Taxable gain		£6,950
CGT at 24% (higher-rate taxpayer)	£6,950 × 24%	£1,668

Worked Example: Selling a Buy-to-Let Property

Lisa bought a rental flat in 2016 for £200,000 (plus £3,000 stamp duty and £1,500 solicitor fees). She spent £15,000 on an extension in 2019. She sells in November 2025 for £320,000, paying £5,000 in estate agent fees and £1,200 in legal fees. Her taxable income is £32,000.

Step	Calculation	Amount
Disposal proceeds		£320,000
Less: acquisition cost		−£200,000
Less: stamp duty on purchase		−£3,000
Less: solicitor fees on purchase		−£1,500
Less: extension (enhancement)		−£15,000
Less: estate agent fees		−£5,000
Less: solicitor fees on sale		−£1,200
Gain		£94,300
Less: Annual Exempt Amount		−£3,000
Taxable gain		£91,300
Gain within unused basic-rate band (£37,700 − £32,000)	£5,700 × 18%	£1,026
Remaining gain at higher rate	£85,600 × 24%	£20,544
Total CGT		£21,570

60-day reporting: Lisa must report this gain and pay the CGT within 60 days of completion using the HMRC online property return. She will also include it on her Self Assessment return and receive credit for the tax already paid.^[1]

Using Capital Losses

If a disposal results in a loss, you can use it to reduce your gains:^[2]

Current-year losses are automatically deducted from current-year gains, even if this takes the net gain below the AEA
Brought-forward losses from previous years are used only to reduce the net gain to nil — they are not wasted against the AEA
Capital losses can only offset capital gains — they cannot reduce your income
Losses must be reported to HMRC within four years of the end of the tax year in which they arise

Frequently Asked Questions

How do I calculate a capital gain?

Take the disposal proceeds (the amount you sold for), deduct allowable costs (purchase price, improvement costs, buying/selling costs), and the result is your gain or loss. Then deduct the Annual Exempt Amount (£3,000) and any capital losses. The remainder is taxed at 18% or 24%.

What costs can I deduct when calculating a capital gain?

You can deduct the original purchase price, stamp duty and legal fees on acquisition, costs of improving the asset (but not maintenance or repairs), and incidental costs of selling such as estate agent and solicitor fees.

How are capital losses used?

Current-year losses are automatically deducted from current-year gains, even if this reduces gains below the Annual Exempt Amount. Losses brought forward from previous years are only used to the extent they reduce net gains to nil — they are not wasted against the AEA.

What if I sold the asset to a family member at a low price?

If you sell to a connected person (close relative, company you control, etc.), the disposal is deemed to take place at market value for CGT purposes, regardless of the actual price paid.

Sources

Capital Gains Tax: work out your gain — GOV.UK
Capital Gains Manual: CG15000 – Computation — HMRC
Capital Gains Manual: CG15150 – Allowable expenditure — HMRC
Capital Gains Tax: rates and allowances — GOV.UK