When £40,000 is invested in a security for 1 year, pre tax return of 10% is earned and capital gain tax rate is 8% the net amount after tax will be as under:
Investment value in one year: £40,000
Capital Gains: £. 4,000
Capital Gain Tax @ 8% £. 6,000
Value after Tax: £50,000
Return after Capital Gain Tax: 9.2%
This value can be calculated through a single formula:
Value after tax = Principal * [(1+R) N (1-TCG) + TCG]
= 1,000,000 * [(1+10%) 1 (1-8%) + 8%]
= 1,092,000
Where
R: before tax rate of return.
N: No. of years
TCG: Capital Gain tax rate
In this way future value can readily be calculated for a number of investments.
In February 2012 she sells 400 Pearce plc shares for 2 per share (£2,080 disposal proceeds), incurring dealing costs of £105 including VAT.
Step 1
Number of shares Pool of actual cost
April 2006 The Section 104 holding is formed 1,000 £4,150
Step 2
January 2007
Add the allowable expenditure on the new shares to the pool of cost
Add cost of more shares 500 £2,130
1,500 £6,280
Step 3
May 2011
To calculate the gain or loss:
First, calculate the amount of allowable expenditure by multiplying the pool of cost by:
Number of shares sold = 700
Total number of shares in the holding 1,500
Cost £6,280 x 700
1,500 = £2,931
Second, calculate the gain or loss:
Disposal proceeds £3,360
minus allowable cost £2,931
Costs £ 100 £3,031
Chargeable gain £ 329.
Question 2
Shares sold to Pearce plc
January 1979
January 1980
March 1990
January 2000
March 2005
Face Value
£1,000 £1,000 £1,000 £1,000 £1,000
Coupon Payment
£100 £125 £150 £200 £75
Years to Maturity
3
5
6
4
6
Price
£1,078.73 £1,225.51 £1,381.32 £1,440.34 £1,023.83
After Rights Issue
Cash Flow
July 2010
1 May 2011
20 May 2011
24 June 2011
24 June 2011
Total
Liability
Year 1
£1,000 £1,250 £1,500 £2,000 £750 £6,500 £32,000
Year 2
£1,000 £1,250 £1,500 £2,000 £750 £6,500 £25,000
Once the disposable income has been identified, ...