Tax and your investments

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8. Capital gains tax basics

Capital gains arise 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, currently £9,600 for each spouse.

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 cost
• Date of acquisition
• Date of disposal
• Disposal proceeds

When you have this information you are in a position to take advantage of indexation, taper relief, losses and your annual exemption.

1. Keeping it legal 2. How HMRC treats your investment income 3. Keeping records 4. The basis of dividend income 5. Dividend income 6. Interest income 7. Interest on Treasury Stock 8. Capital gains tax basics 9. Base cost 10. Indexation 11. Taper relief 12. Indexation and taper relief - together! 13. Date of acquisition 14. Disposal proceeds 15. Disposal of a holding with a history 16. Takeovers 17. Bonus/scrip issues 18. Share splits 19. Buybacks 20. Rights issues 21. Share options 22. Beneficiaries and minors 23. Calculating your CGT liability 24. Using your annual CGT exemption 25. Transfers between spouses 26. ISAs 27. Delaying capital gains 28. Other tips to reduce CGT liability 29. Conclusion