Aat Level 4

Revision Notes 7 – Capital Gains Tax – Special Rules

  * Dealing with Part Disposals

  1. Calculate the cost of the part disposed of – (original cost 4,000, Proceeds 3,000, value of part retained 9,000)
Original cost of the whole asset x   A             = £1,000
                        (A + B)
A = Proceeds (or market value) of the part disposed of
B = Market value of the part retained

The computation is then carried out as per normal

Proceeds £3,000
Less cost (as calculated)   (1,000)
Gain £2,000

  * Improvement Expenditure

  1. When an item is improved or enhanced after purchase and then later sold in the improved condition, then the improvement expenditure forms an allowable cost in the computation.
  2. The expenditure must be capital in nature (extensions / an antique professionally restored)
Purchase price of holiday home £60,000 in 1984. In January 1990 he spent £40,000 on an extension, then sold the property for £300,000

The computation is then carried out as per normal

Proceeds £300,000
Less Original Cost (60,000)
Less Improvement (40,000)
Gain £200,000

  * Principle Private Residences (PPR)

  1. Where a taxpayer has two properties and uses them both only 1 can be treated as the PPR.
  2. The taxpayer can elect which it is but must notify HMRC within 2 years of acquiring the 2nd property
  3. If the PPR is later sold it can make a gain.
  4. Providing it has been a PPR at some point during ownership, the last 18 months are deemed as part of occupation period
  5. The gain (£200,000) is worked out based on the whole period of ownership and then apportioned to arrive at the exempt gain by multiplying the total gain by:
Period of Ownership (Actual & Deemed) as PPR
                    Period of Total Ownership


Bought cottage for £50,000 01/Jan/89 as holiday home
He retired on 01/Jan/99 & sold his PPR and moved to the cottage (became his PPR)
On 01/Jan/04...