Hey guys, it's sasha, if you're an investor and you're trying to figure out at the end of the financial year how to calculate your capital gains tax, it can seem really daunting. It can seem difficult. Where do you start? How do you actually do it? Well, don't worry in this video! I will walk you through exactly how to go about calculating capital gains on investments in shares, etfs and whatever else any other assets pretty much. That follow the same pattern.

Just note that i am based in the uk, and so this calculation will be based on the way that it works in the uk and it may differ slightly depending on when you live. Although a lot of other countries follow very much pretty much the same principles as a brief disclaimer, i am not a financial advisor. I cannot provide financial advice to you and if you do need financial advice, please make sure you seek the help of a suitably qualified professional. You might want to seek that help in after watching this video.

Just a word of warning. First, really briefly: let's talk about the tax rates on capital gains in the uk for shares. The first 12 300 pounds of the tax of the gains will be tax free and after that, you're going to pay 10 if you're a basic rate, taxpayer and 20. If you earn over 50 000 pounds, i have a whole video where i go into the depths of that that i'm gon na link in the description below so go and check that out.

I will also cover at the end of the video how that calculation actually applies, but let's start with a very simple example: you buy some shares in company x and then at some point later you go and sell those same shares. The calculation is really easy. Um. Let's, let's talk about a really specific example that includes uk stamp duty and also includes broker fees, because you are able to offset broker fees and uk stamp duty against the capital gains that you calculate so imagine that you buy 10 shares of games workshop in may 2020, for example, for 60 pounds each, so that's 600 pounds spent in total.

You then sell them in march 2021 for a hundred pounds each and then you will have paid stamp duty when you bought the original shares and that's going to be 0.5 of the original purchase. That's three pounds and also, let's assume, for simplicity's sake, the broker charges. You three pounds per transaction, so that means you paid three pounds when you bought and three pounds when you sold. So the capital gains in this case will be 10 times 100 pounds the sold value minus 10 times the 60 pounds.

The amount that you bought. The shares for and that's a thousand minus 600 equals 400 pounds. You can then subtract the six pounds worth in fees and the three pounds of stamp duty. So your total taxable gain on this particular transaction is 391 pounds.

Remember that if you don't have fees or stamp duty applied, you just don't subtract them and the calculation becomes even easier. Now this was very nice and easy. It's going to get quite a lot more complicated, so bear with me. It becomes a bit more difficult when you begin doing a partial sale, so let's do the same sort of example, but instead of setting 10 shares at the end, you only sell two, for example.

So in that case, you continue owning eight out of the original 10 shares and because you haven't disposed on that of them, no taxes due, you don't have to pay any tax if you continue owning the shares so for the two shares that you have sold the Calculation is two times 100 pounds minus two times 60 pounds, so the amount that you originally bought them for, which is 80 pounds in gains, and then, when you subtract stamp duty that applies. That would be two-tenths of the three pounds that you initially paid at 60p and then you have to proportionately figure out what the transaction fees are. Only one-fifth of the original purchase transaction will apply because you're only selling two out of the ten shares, so that's 60p, but then the entire three pounds from the sell still applies. So the total fees will be three pounds.

Sixty the gain is then, eighty pounds minus sixty p. That's the proportion of stamp duty minus three pound, sixty the fees for a total of seventy five pounds, eighty, but where it gets really complicated, is if you bought and sold multiple times over time. This is the bit people most often find the hardest, and i get a lot of questions about this. The key difference here is figuring out how much you actually bought the shares for in the first place.

The sell bit is the easy bit because whenever you sell, you know the price at which you're selling, but what is the price at which you actually bought the shares? How does it work? Do you use the most recent purchases? Do you use the oldest purchases of the same share if you bought them multiple times, paul, none of those options? Each time you sell the shares you have to use the average price at which the shares were bought up to that point, that's how it works, and this is where it can get really messy if you're, not careful. So, let's use a very similar example and i'll walk you through it. You buy 10 shares of the same games workshop for 60 pounds each in may 2020. You then buy another 30 shares, for example, for 80 pounds in june 2020, and then you go and sell 10 shares for 100 pounds in march 2021., so the average buy price in this case is going to be 10 pounds times 60, which is the original purchase Plus 30 times the 80.

The second time you bought divided by 40 to get the average share price that you bought, which will come out at 75 pounds. The capital gains calculation now goes 10 times 100. The amount you sold for minus 10 times 75 equals 250.. The average stamp duty paid is relatively simple: it's just the average buy price which is 75 pounds times 10 shares times 0.5 percent, because all of your buyers had stamped gt, applied tests, three pounds 75, then transaction fees where it gets a little bit more complicated.

There were two separate buy transactions for 40 shares in total and each of those transactions cost three pounds. That's six in total, but you only sold 10 out of those 40 shares. So only a quarter of those total buy fees applies in this case. So that'll be one pound 50., but the full three pounds of the sell transaction still applies.

So that means that the capital gain is now 250 minus 3 pounds 75. This time duty, minus 4, pound 50 for the transaction fees for a total of 241.75. Was that a little bit hard well is: don't worry it's about to get much harder than this? What happens if, after you do this, you then go and buy some more shares and sell some more of the same company? Oh dear? Well, let's do it! Let me explain how it works: let's buy another 10 shares for, for example, 120 pounds in may 2021. I am making this up because this is at some point in the future.

This is not some kind of prediction in any way, then, let's, for the sake of argument, assume that we then sell 10 shares for 150 pounds in june 2021. So now the average buy price is 30 out of the 40 shares that you bought before the first cell cost an average of 75 pounds. We already worked that out then an additional 10 that we just bought cost 120., so the average buy price is 30 times. 75 plus 10 times 120 divided by a total of 40 86 pounds 25..

You can then do the same calculations before so you get 10 times 150. The sale price minus 10 times 86 pounds 25, which equals 637 pounds 50.. Then you subtract. 0.5 percent of 10 shares of 86 pound 25 average by price.

That would be four pounds: 30 in stamp duty and transaction fees, so three pounds for the sell and then you have 10 over 50 because you bought a total 50 worth of shares that cost. You three lots of three pounds in transactions says 10 over 50 times 9 pounds for 1 pound 80 for the buys. So when you add them up, you get 637 pounds: 50, minus 4.31 minus 4 pounds 80 for a grand total of 628 pounds 39.. So for anyone who opened up an investing account recently began selling and buying stocks in the same company.

All the time you're gon na have a fun time figuring. This out, i can already tell you one important thing to remember - is that if you made a loss on any trades, you can offset that loss against any gains. You have to work out the individual gains on each particular trade that you did and then sum them all up. If you work out the loss, you do it in exactly the same way as you would with the gain, and then you just talk them up and the best thing is.

You can also go and deduct losses from past tax years against a gain in the current tax year. If that's in your situation - and you can do that for a total of four past tax years. So that's another benefit, although you do have to go and work that out for all of those past tax years, if you haven't done it already so to work out the total capital gain in order to go and do it at the end, you literally need to Do this calculation i just mentioned for every single time you sold any shares. This is the critical thing or any other assets during the course of the year.

The more you trade, the same stock, the more difficult the calculation will get because you keep having to adjust what the average buy price of the shares is. Each time you buy and then sell the stock. You constantly have to adjust how many shares you have left at which average buy price and that can get quite difficult. But if you sold shares in the company and then re-bought the same shares within 30 days, then bed and breakfasting rules apply, and this is critical because it means that as far as hmrc is concerned, you have never sold the shares in the first place.

But if you bought a different number of shares after you sold them, then you can get into all kinds of difficulties, because you have to work out what proportion of the shares that you sold and then bought again apply to the breakfasting rule and what proportion do Not and do all the calculations also, if you have an account that is not in pounds, for example, etoro, which is based on dollars. You will need to convert each single transaction so whenever you bought the different shares and sold them into the pound equivalent on the day on which the transaction happened using daily exchange rates. In order to do this calculation, you can't just go and use one, because the fluctuation and exchange rates will mean that the prices are different. So that's another difficulty for anyone who wants to add to what is already quite complicated.

Also, remember, you can't spread gains over multiple years, so if you go and buy shares and hold them for sale 10 years and then sell them, you don't get the benefit from having 10 years worth of capital gains tax allowances. You don't you the year in which you sell any shares is the year in which that tax will be calculated and which it will be you so, once you've figured out the total capital gains once you've got that number at the end, applying the tax rate at The end is the really easy bit the first 12 300 pounds of the capital gains is tax free and you are nothing. Then you take any amount that you've earned in the year from other sources like, for example, your salary, and that's your starting figure. Any amount between that figure and fifty thousand pounds will be taxed at ten percent and any amount from fifty thousand pounds on woods will be taxed at twenty percent.

That's the simplest way of explaining it for me. So, for example, let's say you earned 40 000 pounds in salary during the financial year. You then earned another 30 000 pounds in capital gains, for example, so 12 300 pounds of that capital gains will be tax free, the next 10 000. The difference between 40 000 salary and 50 000 will be taxed at 10, so that'll be 1 000 pounds in tax.

The remaining 7 700 pounds will be taxed at 20 percent, so that'll be one thousand five hundred and forty. So the total capital gains tax ju. In that example, will be two thousand five hundred and forty pounds. The most critical thing to getting all of this right is to keep a record of all the transactions, and this is harder than it might seem.

I'm still looking for a good piece of software to do it. If someone knows of a particularly good piece of software, make sure you drop a comment. I'd be really interested to go and check them out because i've been looking around, but you are legally obligated to keep a record and i personally literally use excel. Remember you can download, or you need to download all the copies of transactions, especially if you plan to close the account, which may mean that you won't have access to those transactions in the future.

Some brokers are really helpful. For example, trading212 will send you a breakdown. The next day of all the transactions in the previous day and exactly what rates, applied, etc, all the fees. So that's really really useful.

Others are not quite as useful, for example, free trade. Don't do anything like that and if you look at the one tab where it has the history of all the different transactions, it's not got very much information. You have to click each one to go and figure out what's happening, so you will have to go and manually jot them all down to keep some kind of record as it stands, maybe they'll improve. But you need to get into good habits, because if you wait until the end of the year, it can be really really frustrating now you can see this.

How this whole thing can get really messy really really quickly. So if you are in a position where you have a ton of this stuff, you may have to go and hire an accountant. If you don't want to go and do it yourself, remember, you'll still have to do all the noting down of all the transactions and all the taxes paid and all the fees and stuff, because the accountant won't be able to do it for you. So, unfortunately, that bit is something you can't just opt out of, but i hope you guys found this useful if you have make sure you smash the like button future algorithm, so that more people can go and understand how incredibly complicated this can get.

As always, i really appreciate anyone who manages to watch one of these videos all the way through. Thank you so much for doing it, and i will see you guys later. You.