Capital Gains Tax

NotesQuizObjective Test

This is when you sell an asset, e.g. shares

How is the capital gain calculated?

Proceeds - cost of the asset

Indexation Allowance

This simply increases the "cost" of the item for inflation and so makes the profit you're taxed on less

Buy an asset for 100 10 years ago

Sell it this year for 150

Indexation allowance for this period is 30%
Capital gains tax is 25%

How much tax is payable?

Answer

Proceeds = 150
Cost = 100
Indexation = (100 x 30%) = 30

So profit is 150 - 130 =20

Tax is 20 x 25% = 5

Note that indexation can't create or increase a capital loss

Capital Losses

These can be:

  1. Carried forward against future CAPITAL gains

  2. Used this year to reduce CAPITAL profit

Rollover Relief

This is when you replace the asset sold

  • So effectively the profit hasn't been realised yet

  • So you don't get taxed in it yet

  • The tax has been deferred

NotesQuizObjective Test