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).