Question

Suppose George buys a property for the sum of € 150,000. Assume also that the value of the property increases by 5% per year. The capital gains tax rate is 10% and George plans to sell the property after 2 years (at the end of the 2nd year).

Calculate George's tax liability when tax is levied as capital gains accumulate irrespective of whether the latter is collected by the beneficiary (ie irrespective of whether the goodwill is accounted for).

Answer 1

Cost	$                150,000
Annual increase	5%
Sold year	2
Selling price=	150000*(1+5%)^2
Selling price=	$                165,375
Capital gain	165375-150000
Capital gain	$                  15,375
Tax rate	10%
Capital gain tax	$               1,537.50