# Why Are Percentage Gains Used for Capital Gains Tax Calculations?

In the context of UK investments, I'm led to believe that encashing a general investment account (OEIC/UT) can result in a capital gains tax liability. My understanding is that when calculating this liability, you consider the difference in a fund's initial purchase price and its current sale price to work out the taxable gain.

Let's say I've got £5,000 invested in "Fund A" within a GIA today. I bought this for £2 per unit in 2013 and I want to encash it now when it's worth £2.50 per unit.

My initial attempt to work out the gain is was therefore: £5000 ÷ £2.50 = 2000 units 2000 × £2.00 = £4000 initial value £5000 - £4000 = £1000 gain

However, I've been told that the above is incorrect and I should be looking at percentage gain instead: (£2.50 - £2.00) ÷ £2.00 = 0.25 (i.e., 25% gain in share price) 0.25 × £5000 = £1250 gain

Now, I don't understand how the percentage-based method can possibly be the correct way to work this out. Surely if I buy 2000 shares for £2 each and then sell them all at £2.50 then I've gained £1000 by doing this buy/sell transaction? Any explanation would be greatly appreciated.

• Disappointing about the down-vote. Maybe this just isn't the place to ratify what you're told by financial advisers! – ATG Jan 29 '16 at 14:42
• You've simply got a calculation error in your percentage gain. That's 25% times your intiial investment, not 25% times its current value. 0.25 x £4000 = £1000 gain, same as your initial attempt. – davmp Jan 29 '16 at 15:51
• Thanks, @davmp. The adviser I spoke to did say explicitly multiply by current value, but it's reassuring to know that his suggestion made as much sense to everyone else as it did to me! – ATG Jan 29 '16 at 19:00