Capital Gains Tax

Introduction

**Capital Gains Tax ('CGT')** is a tax on the **profit (or 'gain')** made when a person **disposes of** an asset that has increased in value. It is the **gain**, not the sale proceeds, that is taxed. In property transactions CGT is particularly important because land tends to **appreciate** over time. This chapter explains the **basis of charge**, how a chargeable gain is **calculated**, and — most importantly for the SQE — the **Principal Private Dwelling-House Exemption** (also called **private residence relief**), the rules on **allowed absences**, **business use**, **electing a main residence** where more than one property is owned, and the **payment and reporting timeline** under the **Taxation of Chargeable Gains Act 1992 ('TCGA 1992')**.

Assessment focus

For SQE1 FLK2 (Property Practice), you must understand the **taxation of property transactions**, of which CGT is a core element alongside SDLT and VAT. You should be able to: identify the **chargeable person** and **chargeable asset**; explain that **companies pay Corporation Tax, not CGT**, on gains; calculate a chargeable gain in outline (proceeds less acquisition cost, allowable expenditure under **TCGA 1992 s. 38** and the **Annual Exempt Amount**); and apply the **Principal Private Dwelling-House Exemption (TCGA 1992 ss. 222-226)**, including the **0.5-hectare rule**, the **final 9 months** and other **allowed absences (s. 223)**, **business use (s. 224)** and the **election** of a main residence **(s. 222(5))**. Questions are **single best answer questions (SBAQs)** set in **realistic client scenarios** and frequently combine CGT with **SDLT** and **VAT** in one stem. This is a **closed-book** assessment — recall the key figures (0.5 hectares, 9 months, 2-year election window, 60-day reporting deadline, 31 January) from memory.

Study tips

1) Remember the **chargeable person / chargeable asset / disposal** framework — and that **companies are outside CGT (they pay Corporation Tax)**. 2) Learn the **deductibles**: acquisition cost, incidental costs and enhancement expenditure under **TCGA 1992 s. 38**, plus the **Annual Exempt Amount**. 3) Master the **Principal Private Dwelling-House Exemption**: only or main residence **throughout** ownership exempts the **whole** gain; garden/grounds exempt up to **0.5 hectares**. 4) Memorise the **allowed absences (s. 223)**: the **final 9 months**, up to **24 months** at the start, **working overseas**, up to **4 years** for employment elsewhere, and any **up to 3 years** for any reason. 5) **Business use (s. 224)** — a part used **exclusively** for business is **not** covered by the relief. 6) **Election (s. 222(5))** — owners of more than one residence may elect their main residence within **2 years** of a change in the combination of residences. 7) **Reporting**: residential property disposals must be reported and the tax paid within **60 days** of completion; otherwise CGT is due by **31 January** following the tax year of disposal.