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Capital Gains Tax in 2004 - The New Rules
December 3, 2004
By Srinidhi Goenka
The laws governing the capital gains tax in 2004
have slight changes in comparison to the taxation
rules which were prevalent in the previous year. These
rules keep changing annually depending upon the performance
of each State. If a particular state makes a profit,
then the capital taxes are reduced for the following
year and vice versa.
Overall, there are certain basic rules. These are
then modified by each State according to its goals
for the next year and the balance sheet of the state.
Changes in Capital Gains Tax in 2004
After you calculate your total chargeable gains, the next step
is to reduce the annual exempt amount. This net amount will then
determine the capital gains tax payable by you. In the year 2003-04,
the annual exempt amount is GBP 8,200. This amount increases annually
depending upon the expected inflation.
Now, if your net chargeable gains are less than the exempt amount,
then you do not have to pay any capital gains tax. But, of your
net gains are more than the exempt amount, then you will have to
pay the tax on the excess amount only.
For example, of your net gains are GBP 19,200, then the tax will
be charged only on GBP 11,000 i.e. GBP19,200 less GBP 8,200.
Now, the amount of capital tax payable is calculated on the basis
of the following slab rates for 2004 :
· 10% if your total income after allowances is less than
£1,960.
· 20% if your total income after allowances is less than
£30,500 and has not been charged at 10%.
· 40% if your total income after allowances is more than
£30,500.
To illustrate the above, here is an example:
Your total income is £25,500. Your personal allowances are
£4,615. So, the income chargeable to income tax will be £20,885
i.e. £25,500 less £4,615. Now, let us say that the portion
chargeable to capital gains tax is £10,000.
As per the rules, the starting rate limit is £1,960 and the
basic rate limit is £30,500. So :
Add the amount chargeable to capital gains tax (£10,000)
to the income chargeable to income tax (£20,885), i.e. a total
of £30,885.
Now, as none of the amount chargeable fits into the first bracket,
you do not tax any of it at 10%. As £9,615 of the amount chargeable
to is within the second slab, i.e.£30,500 less £20,885)
you tax this at 20%. As the balance of £385 (£10,000
less £9,615) is above the basic rate limit, you tax this amount
at 40%. Thus, the calculations would be like :
£9,615 x 20% = £1,923
£385 x 40% = £ 154
Total tax payable = £2,077
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