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Equity, in its crudest term, is the full value of something when broken down into assets. An asset, while we’re here, is an item of value. An example of a few common assets that you might have are your house, your car, your jewellery etc.
In the context of finance, equity can refer to either the value of all the shares in a limited company, or the value tied up in a property after the mortgage.
If the company’s assets are liquidated, the equity would be what the shareholders are returned. In simpler terms, when you buy shares in a limited company, you are buying equity in that company.
If you make income through equity, you might be liable to pay tax on your earnings. Take a look at the following scenarios where you might owe tax:
To read more about tax owed on equity, head over to HMRC for more detail.