for example. Let’s say i held shares for 3 years and at the end of 3 years i sold them for their current value of £80,000. And the cost that I bought then am in total was £8,000. what would be the capital gains on that calculation please? and if i was paying 20% tax already for my work earnings per year.
You pay a flat rate of 18% tax on gains over £10,100.
e.g. £80,000-£8,000 = £72,000 Gross profit
£72,000-£10,100 = £61,900 Taxable gain
£61,900 * 18% = £11,142 tax.
NB. CGT allowance for 2009/10 has increased to £10,100 from £9,600 in 2008/9.
Proceeds 80,000
Cost 8,000
Gain 72,000
Exemption 9,600
Tax due 62,400 @ 18% = £11,232.
CGT is separate from income tax.
CGT has nothing to do with your earnings from employment or other income, all of which is charged to income tax.
You will be liable for CGT on the chargeable gain. The gain is the selling price less the purchase price less any costs associated with the purchase or sale (such as broker’s fees). So the gain is £80,000 – £8,000 – expenses. If, for example, the total expenses was £1000 this would be £71,000.
Your CGT liability is calculated over a tax year. You add up all your gains, and take off any losses in the year. You have an annual exemption of £10,100 so will only pay CGT on any gains above this figure. Assuming you have no other gains or losses you will be liable for CGT on £71,000 – £10,100 = £60,900.
CGT is charged at 18% so your CGT bill would be £10,962.
There are a number of reliefs that may enable you to reduce the bill, but you would need to speak to an accountant to see if they might apply.
But if you are married you can take advantage of your wife’s annual exemption. Transfer’s to spouses are free of CGT, but the receiver pays CGT as if they paid the original purchase price. If you give half the shares to your wife the overall gain is the same, but you can now take advantage of their annual exemption in addition to yours. The gain is now £60,900 – £10,100 = £50,800, so the CGT bill is reduced to £9,144.
Obviously you can only do this if your wife does not have gains of her own. But on the flip side if your wife has losses you will be able to offset those against your gain.
Capital gains tax calculations are very easy now.
Take the value that you bought the shares for and add any expenses incurred for buying and selling. This is the base cost. Subtract the base cost from the value they are sold for to arrive at the taxable profit.
In your example the profit is £72,000. The first £10,100 of profit is tax free as it is within your capital gains tax allowance (assuming you haven’t already used it), the balance is taxed at a flat 18% regardless of how long you have held them for, meaning a tax charge of £11,142.
You can spread the encahsments over different tax years to use your capital gains tax allowance more than once or transfer some shares to your spouse so they can use their CGT allowance.
Shares held within ISA pay no capital gains tax.
Disclaimer:
The answers above are for guidance only and should not be acted upon without you receiving independent financial advice relevant to your circumstances. To find and IFA please go to http://www.unbiased.co.uk