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What improvements are allowed for Capital Gains Tax (UK)?

  • 2 min read
  • Last updated 16 Sep 2022

Are you thinking about selling a capital asset – such as a home, investment property or even a piece of art – and not sure what improvements are allowed for Capital Gains Tax (UK)? Maybe you’re just thinking about making improvements to the asset for now?

When you sell your asset, you’ll make a capital gain. And this means you’ll need to pay tax too!

How much CGT you’ll pay depends on:

  • How much you purchased the asset for
  • How much you sell the asset for
  • The costs associated with selling it (like solicitor fees)
  • Any improvements you’ve made to the asset

In this guide, we’ll be looking at the improvements side of things, helping you understand what improvements are allowed for Capital Gains Tax (UK).

What counts as an improvement?​​

You can’t always deduct improvement costs from Capital Gains Tax. So what exactly counts as an improvement?

HMRC looks at improvements based on three things:

1. Have the improvements been made on the asset?

It might sound obvious, but any improvements will need to be made to the asset itself to count. Any improvements outside of this aren’t allowable expenses.

Here’s an example! Let’s imagine you own a classic car you’d like to sell. Before selling, you have some of the paintwork restored for £2,000.

The restorer suggests you have some repairs carried out on your driveway, as this is damaging the paintwork. This costs an additional £1,000.

The £2,000 paintwork is an improvement, so this can be included. The driveway improvements however were not made on the asset, so they can’t be included.

2. Have they improved its value?

You might be wondering if there’s a difference between improvements and repairs – and there absolutely is!

If you repair something to its original state, you can’t deduct this, but you can with anything that adds value.

Sounds complicated? Imagine this! You’re looking to sell your second home so you make some changes throughout. 

One of your changes is adding an extension at a cost of £10,000. This adds value to the property and counts as an improvement. 

Another change includes repairs to damaged doors at a cost of £2000, but these don’t add any value to the property. This is a repair and can’t be deducted.

3. And finally, are improvements still reflective at the time of disposal?

You might think your improvements are adding value, but will they still add value when it comes to selling your asset? 

Any improvements will need to retain their value to be deductible.

Here’s a scenario! You own a rental property and your tenants request some essential improvements. This includes new flooring throughout.

However, when it comes to selling the property in 5 years’ time, the floors have worn away and need replacing again, so they haven’t retained their value. This wouldn’t count as an improvement.

If your asset ticks all three boxes above, then it counts as an improvement and can be deducted from your Capital Gain to calculate any CGT.

Sounds simple now, right?

Calculate your Capital Gains Tax, the easy way

Now that you’ve got to grips with improvements, you can calculate how much Capital Gains Tax you’ll need to pay.

We’ve made this super easy using our CGT calculator. Give it a whirl!

Your situation

Outlined number oneOutlined number one
How did you make money?
Profit from capital gains
Annual salary
?
Other income
?

Tax and profit

Outlined number two
  • Your profit from
    shares
    £20,000
    Incl. £12,300 tax-free CGT allowance
    ?
  • Capital Gains Tax to pay
    £1,413
  • Profit after tax
    £18,587

How your capital gains tax is calculated

Your total capital gains tax (CGT) owed depends on two main components:

  1. How much you earn in total
  2. What type of assets you sell

Your overall earnings determine how much of your capital gains are taxed at 10% or 20%.
Our capital gains tax rates guide explains this in more detail.

In your case where capital gains from shares were £20,000 and your total annual earnings were £69,000:

Capital gains tax (CGT) breakdown

You pay no CGT on the first £12,300 that you make

You pay £127 at 10% tax rate for the next £1,270 of your capital gains

You pay £1,286 at 20% tax rate on the remaining £6,430 of your capital gains

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