A little capital gains example for you

Peter bought a holiday home in Cornwall in 1995 for £50,000, which he has just sold for £250,000.  He paid £1,000 in legal fees when he bought the property and incurred £2,500 in legal and estate agent fees in selling it.

Peter can calculate his taxable gain as follows:

Base cost = £50,000 + purchase cost (£1,000) = £51,000

Sale price less costs = £250,000 – fees (£2,500) = £249,000

Net Gain = £249,000 – £51,000 = £198,000

For the year 2016/2017 Peter has a capital gains allowance of £11,100, whilst property capital gains are taxed at 18% for basic rate taxpayers and 28% for those on the higher rate.  Peter has no other income this year (or is lucky enough to work for a supranational institution, where his earnings do not constitute taxable income).

Subtracting his annual capital gains allowance from his net gain = £198,000 – £11,100 = £186,900.

The first £32,000 is taxable at 18% = £5,760

The remaining £154,900 is taxable at 28% = £43,372

Total capital gains tax payable £49,132

 NB: Non property gains are taxed more leniently (10% for basic rate taxpayers and 20% for higher rate).

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