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Offsetting is a term that is used within the world of tax. It basically means balancing money that you are owed with the money that you owe. For example, if HMRC allows you to do so, they sometimes let you offset taxes you owe them with tax rebates they owe you.
Offsetting can also be used to describe a similar process in business when a contact of yours is both a supplier and a customer. You can offset the invoice you owe them from the invoice they owe you.
If you’re trying to understand offsetting, then it’s important to know that it can mean a few different things when it comes to tax. This includes:
Lena owns shares in a media corporation.
In June, she decides to sell some of them and makes a profit of £30,000. Later on in the year, she sells more for a loss of £16,000. When it comes to paying tax, she’ll only pay Capital Gains Tax on the difference, £14,000.
This is because Lena can offset the capital loss from the capital gain. She only pays tax on the difference: 30000 – 16000 = 14000.
If you want to know the amount of Capital Gains Tax you might have to pay on your shares, property or cryptocurrency gains, you can use our handy calculator here to work it out.
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