CIMA F1 Syllabus C. Fundamentals Of Business Taxation - Capital Gains Tax - Notes
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:
Carried forward against future CAPITAL gains
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
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Syllabus C. Fundamentals Of Business Taxation
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Syllabus C. Fundamentals Of Business Taxation
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