Capital gains tax questions in R03 look intimidating because they combine several small rules at once. In practice a CGT computation is a checklist. Once you can run the checklist in order, the arithmetic is easier than income tax and the marks come faster.
The order of a CGT computation
- Identify the disposal and check it is chargeable
- Calculate the gain on each asset
- Deduct allowable losses
- Deduct the annual exempt amount
- Establish how much of the basic rate band remains
- Apply the rates
- Consider reliefs and reporting deadlines
Worked example
Tom disposes of two assets in 2026/27. His taxable income after his personal allowance is £30,000.
Asset one, a rental flat. Bought for £180,000 in 2014, sold for £305,000. He spent £15,000 on an extension and paid £4,000 in legal and agency fees on sale.
Asset two, a shareholding. He sells 4,000 shares in a listed company for £26,000. He had bought 6,000 shares for £27,000 four years ago and 2,000 shares for £14,000 two years ago.
He also has a capital loss of £6,000 carried forward from 2024/25.
Step 1, the property gain
| Item | Amount |
|---|---|
| Disposal proceeds | £305,000 |
| Less acquisition cost | (£180,000) |
| Less enhancement expenditure | (£15,000) |
| Less incidental costs of disposal | (£4,000) |
| Gain | £106,000 |
Only capital enhancement counts. Repairs, redecoration and mortgage interest are revenue items and never reduce a gain, which is one of the most common errors in the exam.
Step 2, the share gain
There were no same day or 30 day acquisitions, so the section 104 pool applies. The pool holds 8,000 shares at a total cost of £41,000, giving an average of £5.125 per share. Selling 4,000 shares uses £20,500 of cost.
£26,000 − £20,500 = £5,500 gain
Step 3, total and deduct losses
£106,000 + £5,500 = £111,500 total gains, less the £6,000 brought forward loss = £105,500.
Current year losses must be set against current year gains in full, even if that wastes the annual exempt amount. Brought forward losses are used only down to the level of the exempt amount, which preserves the allowance.
Step 4, annual exempt amount
£105,500 − £3,000 = £102,500 taxable gain
Step 5, rates
Tom has £37,700 of basic rate band and has used £30,000 of it, leaving £7,700.
- £7,700 at 18% = £1,386
- £94,800 at 24% = £22,752
Total CGT: £24,138
Residential property and other assets now share the same 18% and 24% rates, so the old 8% surcharge no longer applies. Notes written before that change will give you the wrong answer.
Reporting and payment
- Gains on UK residential property must be reported and the tax paid within 60 days of completion
- All other gains go through self assessment, payable by 31 January after the end of the tax year
- The real time capital gains service can be used for one off disposals by those not otherwise filing a return
The exemptions worth memorising
- Transfers between spouses and civil partners living together are made at no gain no loss
- The main residence is exempt, subject to the final nine months rule and letting or business use restrictions
- Gilts and qualifying corporate bonds are exempt
- ISA and pension investments are outside CGT
- Cars, and chattels sold for £6,000 or less, are exempt
- Gains on death are wiped out, with assets rebased to market value
Reliefs that appear in questions
| Relief | Effect |
|---|---|
| Business asset disposal relief | Reduced rate on qualifying business disposals, £1m lifetime limit, two year ownership condition |
| Investors relief | Reduced rate on unlisted trading company shares held three years, separate lifetime limit |
| Rollover relief | Defers a gain where business assets are replaced within a set window |
| Gift holdover relief | Defers a gain on gifts of business assets or gifts into most trusts |
| EIS deferral relief | Defers a gain reinvested in qualifying EIS shares |
Planning levers examiners reward
When a case study includes a large gain, the answer nearly always draws on some combination of the following:
- Transfer part of the asset to a spouse before sale to use two annual exempt amounts and two basic rate bands
- Spread the disposal across tax years so two annual exempt amounts apply
- Make a pension contribution to extend the basic rate band and move gains from 24% to 18%
- Crystallise standing losses on other holdings in the same tax year
- Use bed and ISA or bed and spouse rather than repurchasing personally within 30 days
Where marks are lost
- Deducting revenue expenses such as repairs or insurance
- Forgetting to check how much basic rate band remains after income
- Setting brought forward losses against gains before the exempt amount
- Applying the old higher rates for residential property
- Missing the 60 day reporting deadline in a written answer
Run the seven step order twice a week during revision and CGT becomes one of the most dependable scoring areas in R03. The topic rewards discipline rather than recall, which is exactly the kind of question you want to meet in the exam.