Capital Gains Tax is the tax which is due as a result of the financial gain (often referred to as profit) received once an asset is sold or disposed of.

The total gain is calculated by subtracting the sale value from the original purchase value.

For example, if you are selling a residential property, the sale value will normally be the sale price or, in some cases, the market value which the property could be reasonably expected to sell for in an open market. Market value is applied when you give the property away, for example, or sell it at a reduced cost or pass it to a connected person (such as a family member). For assets acquired before 31st March 1982, the market value as at this date will be applied.

It may also be possible to deduct the costs of any improvements made to the property during ownership. These costs may include advice received, general improvements (but not decoration or maintenance) and other legal and professional costs incurred.

Once the total gain has been calculated, any tax relief and tax-free allowances are taken into account before calculating the Capital Gains Tax charge, using the appropriate rate.