What is a Capital Gains Calculator and How It Works?

A capital gains calculator is not a physical calculator like you might have in your geometry box. But, in actual it’s a calculator built by software to analyze the capital gains tax on a particular asset. Capital gains tax is calculated from share trades following HMRC share matching rules. It allows you to make your work super easy, saving your time and energy so that you can think about some other investment opportunities and make your business more prominent.  

“A Capital Gains Calculator analyzes the capital gains tax on a particular asset.” 

You have to paste your trades into a specific box in a particular format. By clicking the calculate button, you can have figures regarding your concern! Capital gains calculator automates the calculation keeping you up to date and on track. It makes your working capacity super-fast, letting you focus on other things as well. Just like an ordinary calculator, it calculates the numerics by keeping in view the deductions mentioned necessary.  

Before proceeding further, you might have to specify the source of profit. Either your profit was gained by the property, shares, crypto, or any other source.  

Your capital gain tax calculation mainly depends on two main things 

  • How much you earn? 
  • What type of assets did you sell? 

The whole earnings sort out how much of your capital gains are taxed at 10% or 20% 

“The capital gains are taxed at ten percent or twenty percent.” 

Let’s suppose that your total earnings are £69,000 and your capital gains from shares will be £20,000. If we break down this to different steps, then  

  • You have to pay no capital gains tax on the first £12,300 you make 
  • You have to pay £127 at a 10% tax rate for the next £1270 of your capital gains 
  • You have to pay £1,286 at a 20% tax rate on the remaining £6,430 of your capital gains 

But you don’t have to worry about the total workout because it’s the calculator going to complete the job!  

Let’s take a deep insight into this working pattern done by this calculator. If a chargeable asset is sold more than the purchased price, then the capital gains rise. It is important to note that only the income or profit is taxed, not the total amount received. 

What is a Capital Gains Calculator and How It Works?

 A capital loss can also happen. When the reverse situation occurs, the disposal proceeds are less than the asset’s cost, resulting in a loss. So, beware of the terms and conditions. Capital losses don’t have to be wasted and can be used smartly to reduce the overall tax bill in the right situation. You have to make the right decision at the right time! 

If you, as a UK resident individual, bought some listed shares for £1000 on January 1st, 2021, and went on to sell the shares on June 30th, 2021. In this case, the chargeable asset is the listed shares, the chargeable person is you, and the chargeable gain is £5000. The total £6000 is not subjected to capital gains tax, but the £5000 is subjected to capital gains tax by the calculator. So, it is the net gain that is subjected to capital gains tax. Meanwhile, you also have to mention the capital gains in the 2021-2022 tax year self-assessment return.  

Suppose you incurred £500 in the broker fees to sell your listed shares; you can simply deduct this cost and any other incidental costs relating to the disposal and allowable expenses. So, now only £4,500 will become subjected to capital gains tax. You have to deduct each and every additional payment made on the calculator to get the net gain. This net gain will be considered regarding the application of capital gains tax.  

“Capital gains tax applies to the calculated net gain.” 

Most importantly, you should know the tax rates applies by the calculator onto your entries. You should specify first in which category you fall before clicking on the result button. We have four types in this regard. The amount of tax rate is different for each category!  

  • Residential property for an individual basic rate tax per year is 18% 
  • Residential property for a higher rate tax per year is 28% 
  • Main Capital Gains Tax rate for primary rate taxpayers, which applies to most other assets, is 10%  
  • The Main Capital Gains tax rate for higher rate taxpayers is 20%  

“You should know the tax rates applies by the calculator onto your entries.” 

Most individuals are entitled to the annual exemption for capital gains tax purposes. For the 2021-2022 tax year, the exemption is £12,300. The yearly exemption means no capital gains tax is payable on gains up to that amount each year. If you have generated capital gains of up to or less than the £12,300 annual exemption, then you don’t have to formally declare a report about your capital gains to the HMRC.    

What is a Capital Gains Calculator and How It Works?
 Spouses and civil partners also have an annual exemption. So, for jointly held assets, spouses and civil partners will be able to exempt £24,600. If you are a trustee, you are entitled to an annual exemption equal to one-half of the exemption available to an individual. So the amount goes down to £6,150. However, trustees of settled property held for people with disabilities or others in receipt of attendance allowance or disability living allowance are entitled to the total annual exemption. 

It is always good to know your numbers. It helps you escape from the loopholes and be on track regarding a particular issue. By calculating and running from all the loopholes, you would feel that a stone is taken off your shoulder. So it’s always good to keep the record of the number in your book, but sometimes the process becomes complicated, and a simple calculation might not help you in this regard.  

However, like all other technology, calculator also has its own descripancies that could give slightly different result from the actual calcution. It is still more advisable to talk to financial experts to have certain, more reliable answers to your concerns. 

Aside from knowing how much really the capital gain tax of a given asset, it is also great to know how to avoid capital gains tax, or to know the effective strategies in minimizing the tax payment. Some of the strategies you should consider following is to avail a pension scheme, utilize CGT allowance and invest in small companies. In those ways, CGT will no longer be burden to you. 

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