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Capital gains tax |
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Capital gains taxThe tax levied on profits from the sale of capital assets. A long-term capital gain, which is achieved once an asset is held for at least 12 months, is taxed at a maximum rate of 20% (taxpayers in 28% tax bracket) and 10% (taxpayers in 15% tax bracket). Assets held for less than 12 months are taxed at regular income tax levels, and, since January 1, 2000, assets held for at least five years are taxed at 18% and 8%.Capital gains taxA tax placed on the profits from the sale of real estate or investments.Capital gains taxCapital gains tax arises as a result of a 'chargeable event' - in the case of stock market investment, the disposal of shares at a profit.Just because you make a capital gain does not mean you necessarily have to pay tax on the gain. It all depends on your personal tax position, and on whether your total gains for the year are within the annual exemptions. The annual exemption per spouse in the tax year 2002-2003 is £7,700, rising to £7,900 for the 2003-2004 tax year.The gain you make beyond your annual exemption is added to any other income you may have and taxed as additional income at your marginal rate, be it 20% or 40%.Whatever the eventual tax position, it is important to keep records that enable you to calculate the gain on the sale of an asset, and ideally your record-keeping should be in a form that lends itself to completing your Tax Return.The essential information you need for each asset is:Base or original costDate of acquisitionDate of disposalDisposal proceedsWhen you have this information you are in a position to take advantage of indexation, taper relief, losses and your annual exemption.Similar MatchesUndercapitalizedUndercapitalizedA business has insufficient capital to carry out its normal functions. Capital gainsCapital gainsProfits an investor makes from the sale of real estate or investments. Venture capital trustVenture capital trustA type of investment trust which invests in small unquoted companies with assets of under £15 million, including AIM and OFEX companies, and which is designed to attract risk capital from higher rate taxpayers by giving them tax concessions.Like investment trusts, VCTs are quoted on the London Stock Exchange.As with investment trusts, their share price may trade at a discount to net asset value.They provide 3 types of tax benefit:-40% capital gains tax deferral, provided the shares are held for a period of no less than 3 years.- 20% income tax relief on the amount of the original investment- All dividends are tax free and all gains on disposal after 3 years tax exempt. But when the shares are sold, the original capital gains tax liability will be re-triggered.VCTs are only allowed to invest in companies under a certain size, and there is a limit on how much they can invest in any one company. The idea is that they must apply their funds to genuinely risky entrepreneurial ventures. Pie model of capital structurePie model of capital structureA model of the debt-equity ratio of the firms, graphically depicted in slices of a pie that represent the value of the firm in the capital markets. Capital employedCapital employedThe value of all the assets employed in a business, including equity and preference capital, fixed and current assets, and gross borrowings.The most common use of capital employed is in the calculation of 'Return on Capital Employed' which measures the operating profit of a company as a percentage of capital employed. In effect, ROCE is telling you how efficient a company is in squeezing profit out of capital. A company that gets £20m of profit out of £200m capital employed is doing much better than one that gets £20m of profit out of £800m of capital employed. Further SuggestionsInvestment Company with Variable CapitalCapital outflow Opportunity cost of capital capital expenditure Morgan Stanley Capital International World Index risk capital Contributed capital Capital account deficit Cost of limited partner capital Capital account balance Complete capital market Capital expenditures Balance on capital account Capital gain Capital account Capital market Total capitalization Capital formation Capital flight capital shares Capital account surplus Capital gains distribution Capital infusion return on capital employed Capital loss |
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