1. What is Cost Basis?

The cost basis represents the total amount invested in an asset for tax purposes. In the UK, it's used to calculate capital gains when you sell an investment. The adjusted basis includes purchase price plus any associated costs minus any distributions received.

2. How Does the Calculator Work?

The calculator uses the cost basis formula:

Where:

• Purchase Price — Original amount paid for the investment
• Costs — Any additional costs associated with the purchase (fees, commissions, etc.)
• Distributions — Any returns of capital or non-dividend distributions received

Explanation: The formula adjusts the original purchase price by adding costs and subtracting any capital returns to determine the true investment amount for tax purposes.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is essential for determining capital gains tax liability when selling investments. It helps ensure you pay the correct amount of tax and don't overpay by understating your basis.

4. Using the Calculator

Tips: Enter all amounts in GBP. Include all purchase-related costs but exclude dividend payments (only include return-of-capital distributions). All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What costs should be included?
A: Include brokerage fees, stamp duty, and any other direct costs of acquisition. Don't include ongoing account fees or dividend reinvestments.

Q2: How are distributions handled?
A: Only include distributions that represent a return of your original capital, not dividend income. These reduce your cost basis.

Q3: Does this apply to all investment types?
A: The principle applies to most investments (stocks, funds, property), but specific rules may vary for complex instruments.

Q4: How does this differ for US investments?
A: US tax rules have different basis adjustment requirements, particularly for mutual funds with dividend reinvestment.

Q5: Where can I find my cost basis information?
A: Your broker should provide this information, especially for investments purchased after 2018 when stricter reporting rules began.