I am confused as to when to apply and when not to apply indexation. For example, a share bought at £100 one year ago and sold at £110. Assuming 5% inflation rate, the taxable realised gain is £110-£100x1.05=£5. What happen if the share is sold at £103? Is the taxable realised gain/loss 1) £103-£100 =£3 or 2) £103-£100x1.05 = -£2 thank you
Hi I'll give it a go Using the figures in your example: If you originally bought an asset at 100 and sold it at 103 and there was an indexation rate of 5% then 1. The sell price exceeds the purchase price so there's a 'gain' 2. Allowing for indexation tax is payable only on amounts in excess of the indexed amount ( ie 100x1.05 = 105) 3. Because this exceeds 103 no tax is payable 4. Profit is therefore 3 ('net' of tax)
My understanding now is: if the price is £104, you get profit of £4 net of tax if the price is £106, you get profit of £1x0.8=£0.08 net of tax so you actually get less profit when price is £106?
Your first point is correct In your second example, 1 * 0.8 = 0.8 right... Your 'solution' can't be right... Isn't it 5 + 0.8 = 5.8
how do you get 5 + 0.8 ? This is my calculation: £106 - £100x1.05 = £1 I get this by applying indexation so am I correct?
The calculation you have written essentially works out the chargeable gain on which tax is paid. Anything in excess of £105 incurrs tax. Your calculation ignores the fact that the first £5 is also profit (albeit tax free). Does that make sense...
