Business Tax - Practice Assessment Question 2.7

avalon1163 Registered Posts: 11 Regular contributor ⭐
Good evening,

Can someone please be so kind and find a way to explain the tax calculation. I feel like sitting in front of a huge wall:

Paul made net capital gains of £34.780 in 2012/2013. He also has other net taxable income after personal allowances of £25090.
Using the table below, calculate the total tax payable on these capital gains. Rounding the answer to the nearest pound.

Capital Gains 34780
Annual Exemption 16000
Taxable Gains 24180

(so far so good)

Tax payable at 18% 1670
Tax payable at 28% 4172
Total 5842

The explanation I was given is:
The first 34,370 is taxed at 18% but as he’s already received net taxable income of 25,090 we have to deduct that from the 34,370 to get 9,280 x 18% = 1,670. That then leaves us with 24,180 – 9,280 to be taxed at 28% = 4,172 making total tax of £5,842

Why are the £25090 DEDUCTED from the total of 34780? Should this not be added together?
What am I missing?

I can honestly say, I look forward to hearing from a gentle soul out there who can clarify this for me.

Thanks a lot.



  • MarieNoelle
    MarieNoelle Registered, Moderator Posts: 1,368
    Hi Sibylle,
    the rate for CGT depends on an individual's personal income. The rate of 18% only applies to the unused amount of the basic rate band.
    Paul has already used £25090 of the £34,370, so he can only use the difference (9,280) at 18%. The rest is taxed at the higher rate of 28%.
    Does this make sense?
  • Clintm15
    Clintm15 Registered Posts: 248 Dedicated contributor 🦉
    Hi Sibylle,

    I think I understand your confusion. The £25,090 was deducted from the £34,370 not the gain of £34,780 as you suggested. This is because £34,370 (the basic rate bad) minus £25,090 (taxable income) calculates how much basic rate band is left.

    I hope this helps.
    Level 2 - 2011
    Level 3 - 2012
    Level 4 - 2013

    F4 - Corporate Law - Dec 2015 (passed)
    F5 - Performance Management - Dec 2014 (passed)
    F6 - Taxation - Dec 2013 (passed)
    F7 - Financial Reporting - Jun 2014 (passed)
    F8 - Audit & Assurance - Dec 2015 (passed)
    F9 - Financial Management - Jun 2015 (passed)
  • avalon1163
    avalon1163 Registered Posts: 11 Regular contributor ⭐
    MarieNoelle, thank you so much.
    Clintm15: that's it - I see it now. I actually feel quite daft now.:-)
    I really appreciate you taking time to explain.
    If by any chance you have a piece of advise as to base rates, that would be truly amazing.
    Have a great weekend.
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