How is a capital gain calculated?

The following Tax practice note provides comprehensive and up to date legal information covering:

  • How is a capital gain calculated?
  • Consideration
  • Valuing non-cash consideration
  • The market value rule
  • VAT
  • Amounts taxable as income
  • Postponed, irrecoverable or contingent consideration
  • Deferred unascertainable consideration
  • Contingent liabilities
  • Allowable expenditure
  • More...

How is a capital gain calculated?

Although the Taxation of Chargeable Gains Act 1992 (TCGA 1992) does not set out how to calculate a capital gain (referred to in the legislation as a chargeable gain), the generally accepted approach is to:

  1. take the consideration received on the disposal of an asset

  2. subtract certain costs (known as allowable expenditure or 'base cost'), in particular the cost of acquiring the asset in the first place, and

  3. if the taxpayer is a company and it acquired the asset before 31 December 2017, subtract any indexation allowance

The result is the chargeable gain.

This Practice Note looks at consideration, allowable expenditure and (where applicable) indexation.

For the meanings of disposals and assets for capital gains tax (CGT) purposes, see Practice Note: What is a capital gain?

In this Practice Note CGT is used as a shorthand for both CGT and corporation tax on chargeable gains.


Normally the consideration is the actual amount received for disposing of the asset, as set out by the parties in any contract governing the sale.

If, as part of the deal, the buyer assumes any of the seller's liabilities, this will count as consideration for CGT purposes. Similarly, on a sale of a company, a waiver of a debt owed by the seller to the target company has been held to be consideration for the company's shares,

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