Only four kinds of cost can be deducted from a capital gain: the cost of acquiring or creating the asset, money spent enhancing it that is still reflected in it when you sell, money spent establishing or defending your title, and the incidental costs of buying and selling. Section 38 of the Taxation of Chargeable Gains Act 1992 sets this list out as a restriction, so anything outside it, such as loan interest, insurance, routine repairs or your own labour, is not deductible.

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What does the law allow as a deduction?

Section 38(1) TCGA 1992 says the sums allowable against the proceeds “shall be restricted to” three categories. HMRC’s Capital Gains Manual at CG15150 describes the underlying principle as allowing only clearly defined capital expenditure. In practice the categories are:

  • the consideration given wholly and exclusively for acquiring the asset, or the cost of creating it, plus incidental costs of acquisition (s38(1)(a));
  • expenditure wholly and exclusively incurred on the asset to enhance its value and reflected in its state or nature at disposal, plus expenditure on establishing, preserving or defending title to it or a right over it (s38(1)(b));
  • the incidental costs of making the disposal (s38(1)(c)).

Two further rules sit alongside. Section 52(1) stops any item being deducted more than once. Section 39 excludes anything allowable in computing income or profits for income tax, so a cost cannot be relieved against rent or trading profit and then again against a gain. The broader distinction is covered in capital versus revenue expenditure.

What counts as the cost of acquiring the asset?

Normally it is what you paid. GOV.UK says market value is used instead in some situations: for a gift, at the date of the gift; for an asset sold for less than it was worth to help the buyer, at the date of sale; for an inherited asset where you do not know the Inheritance Tax value, at the date of death; and for assets owned before April 1982, at 31 March 1982.

Incidental costs of acquisition are defined exhaustively in section 38(2) and CG15250. They are fees, commission or remuneration for the professional services of a surveyor, valuer, auctioneer, accountant, agent or legal adviser; costs of transfer or conveyance, including stamp duty and Stamp Duty Land Tax; and the cost of advertising to find a seller. Each must be wholly and exclusively for the acquisition.

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What is enhancement expenditure?

Enhancement expenditure must pass three tests in CG15180. It must be spent on the asset itself, not merely in connection with it. It must be for the purpose of enhancing value, which looks at purpose rather than whether value actually rose. And it must be reflected in the state or nature of the asset at the time of disposal. The courts have described this as an identifiable change for the better in the asset (Aberdeen Construction Group Ltd v CIR). Following Chaney v Watkis, spending up to the actual change of ownership counts, even though the disposal date for a contract is the date of the unconditional contract.

HMRC’s own example in CG15180 is a buyer who lays a tennis court for £5,000 and later replaces it with a swimming pool for £15,000. Only the pool is allowable, because the tennis court is no longer reflected in the asset when it is sold. CG15186 makes the general point: futile spending, or spending that has wasted away, is not enhancement expenditure.

Repairs need care. Ordinary maintenance is revenue. But CG15201 and the examples at CG14300 show that making good dilapidations on a property bought in a run down state, where the cost is not deductible against rental income, can be allowable for Capital Gains Tax. Later rewiring and redecoration of the same property are not, because they would be revenue spending if the property were a trading asset (s39(2)). For landlords, repairs versus improvements explains which side of the line common jobs fall.

Costs of establishing, preserving or defending title are a separate head within s38(1)(b). CG15180 stresses that this is about protecting title you already have, not the cost of acquiring a new right.

Which selling costs can be deducted?

Incidental costs of disposal under section 38(2) are the same professional fees and transfer costs as on acquisition, plus the cost of advertising to find a buyer and costs reasonably incurred in making any valuation or apportionment required for the computation, including ascertaining market value. CG15260 confirms that valuation costs are allowable whether they are for the return or for a post transaction valuation check, and that a seller’s cost of packing, carriage and insurance to get a chattel to an auction counts as a cost of transfer.

What does HMRC commonly disallow?

Item Why it is refused
Mortgage or loan interest Section 38(3): no interest is allowable except under section 40
Insurance premiums on the asset Section 205 excludes premiums insuring against damage, loss or depreciation
Decorating, rewiring and other maintenance Revenue in nature, excluded by section 39 (CG14300)
Your own labour on improvements Not expenditure incurred (Oram v Johnson, CG15210)
Rent and service charges on a lease Not enhancement expenditure (CG15210)
Improvements removed or replaced before sale Not reflected in the asset at disposal (CG15186)
Costs of arguing a valuation with HMRC, including appeals Incurred after the valuation, not for computing the gain (CG15260)
Accountancy fees for working out the tax Only valuation or apportionment work qualifies (CG15250)
Investment advice, portfolio management, subscriptions Not referable to a particular acquisition or disposal (CG15250)
Notional costs on a deemed sale and reacquisition Section 38(4)

CG14300 adds a useful example of spending “in connection with” an asset rather than “on” it: the owner of a valuable picture can deduct restoration and reframing, but not the cost of equipping a climate controlled room to keep it in, because that spending is on the building, a different asset.

How do structures and buildings allowances affect the gain?

Where you have claimed structures and buildings allowance, section 39(3B) lets the qualifying expenditure remain in the base cost, but section 37B treats the disposal proceeds as increased by the allowances you received. The relief is therefore clawed back on sale. See structures and buildings allowance.

How does this work on a property sale?

Illustration only. Ruth buys a flat to let for £200,000, paying £8,000 in Stamp Duty Land Tax and legal fees. She builds a rear extension for £30,000, spends £5,000 redecorating between tenants and pays £12,000 of mortgage interest over the years. She sells for £320,000, paying £6,000 in agent’s and legal fees.

Item Amount
Proceeds £320,000
Less selling costs (£6,000)
Less purchase price (£200,000)
Less purchase costs (£8,000)
Less extension (£30,000)
Gain £76,000

The redecoration and the interest are excluded: they are revenue items dealt with, if at all, against rental income. Ruth then deducts her annual exempt amount and, as this is UK residential property, reports and pays within 60 days of completion; see the 60 day property return.

What records should you keep?

GOV.UK says to keep receipts, bills and invoices showing what you paid for the asset and any additional costs such as professional fees, Stamp Duty or improvement costs, together with contracts for the purchase and sale and any valuations. Records must be kept for at least a year after the Self Assessment deadline, longer if HMRC has opened a check, and five years after the deadline for businesses. If records are lost, you must try to recreate them and show on the return which figures are estimated and which are provisional. Because enhancement expenditure may have been incurred decades before a sale, an invoice file for each property or holding saves argument later. For a home, the costs rules work alongside private residence relief.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.