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Capital gains maths

  • 28-05-2015 8:54pm
    #1
    Swaine55
    Registered Users, Registered Users 2 Posts: 98 ✭✭


    Thinking about Capital gains at 40% i found it hard to digest, the risk reward seemed too severe. Risk an entire investment to gain 60% of your reward?

    I have now got a self created maths puzzle stuck in my head, and i know it needs fixing.

    I supposed the situation of the stock market and loosing 100k during the crisis. Since the crisis, assuming an investor is long term +EV he will be able to offset his capital loss of 100k against future capital gains up to the value of his capital loss (100k).

    Im trying to figure out if this means the actual value of the lost investment, 100k, would really be something to the tune of -60k? This is obviously not an isolated problem, its important to account for the assumption of the investor being +EV in the long run.

    I'm not a maths student or an investor, so dont hold back on breaking down any possible nonsense iv said


Comments

  • #2
    exaisle
    Registered Users, Registered Users 2 Posts: 2,675 ✭✭✭exaisle


    Why are you thinking about capital gains at 40%? The standard rate of CGT is 33%.

    Capital gains are calculated on a historical cost basis...the adjustment for inflation or "indexation" ended about ten years ago...so,taking a very simple case, if you lost €100k in 2008 and made €120k in 2015 your net capital gain is €20k and you pay CGT on that (less the personal allowance of €1270) which works out at (120,000 - 100,000 - 1,270) x 33% = 6,180.90.

    Hope this clarifies..


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