DEFINITION of Chargeable Gain

Chargeable gain is a British term for the increase in an asset's value between the time it is purchased and the time it is sold, which becomes subject to capital gains tax. Chargeable gains can often be offset by chargeable losses. U.K. taxpayers are also allowed reduce chargeable gains by taking inflation into account (also known as an "indexation allowance").

BREAKING DOWN Chargeable Gain

Certain expenses associated with buying, selling or improving the asset, such as fees or commissions, may be deducted from the amount of the chargeable gain. For example, if a British corporation sells an office, land or securities it owns at a profit, HM Revenue and Customs (the U.K. equivalent of the IRS) categorizes the event as a chargeable gain.

If the assets in question qualify for capital allowances, any loss claimed against the chargeable gain would also be reduced by value stemming from the capital allowances. For instance, if an asset that was acquired for 7,000 British pounds, it might generate 2,000 British pounds in capital allowance while it was owned. When the asset is later sold, for example, for 3,000 British pounds, the company would only record 2,000 British pounds as the capital loss.

Chargeable gain can be thought of as being an equivalent to the U.S. term capital gain.

How Chargeable Gains Are Applied to Special Items

If the asset was not purchased because it was received as a gift or by other means, its market value at the time it was received is used in place of the purchase price to calculate the chargeable gain. Chargeable gains can include compensation received for damages to or the destruction of an asset. For instance, if a company purchased machinery used for production and that machinery is later damaged in a fire, the company might receive funds as recompense for that damage. If the compensation exceeds the purchase price or the current market value of the machinery, which may vary due to age, the excess funding could qualify as a chargeable gain.

Items not counted as chargeable gains include any gains that stem from proceeds that fall under income taxation, the gains from exempt assets, as well as other types of exemptions, such as personal exemptions on capital gains tax.

There may also be thresholds for when taxes are triggered on chargeable gains. This typically is allowed for the initial money recorded as gains up to a specific threshold, which may change depending limits set for each tax year. Taxes would then be levied on the chargeable gains that exceed that threshold.