capital gains tax

Capital 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 2003-2004 is £7,900, rising to £8,200 for the 2004-2005 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 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.