CGT and its impact on investors

Stavros wrote: »

Untaxed Pension of 18k p.a

Here goes. Please for corrections if any errors found:

http://www.hmrc.gov.uk/budget2010/rn-complete.pdf
(page 48, Example 1)

personal allowance: 6475
20% tax band: 37400

Taxable capital gain = 80,000 - 10,100 = 69,900
Taxable income = 18,000 - 6,475 = 11,525


CGT tax at 18%: (37,400 - 11,525) x 0.18 = 4,658
(this is the CGT tax in the 20% income tax bracket on the 25,875 allowance left)

CGT tax at 28%: (69,900 - [37,400 - 11,525]) x 0.28 = 12,327
(where [37,400 - 11,525] = 25,875 and this is deducted from taxable gain to find the amount taxable at 28%)

Total CGT to pay: (4,658 + 12,327) = 16,985

Profit from 80k gain: (80,000 - 16,985) = 63,015
% of capital gain to HMRC: (16,985/80,000) x100 = 21%


But ways to avoid CGT payment with shares as discussed in thread above...


JamesU

So does this now mean that if your capital gains can now class you as paying tax at the higher tax rate then you can also claim the higher tax relief on any pension contributions?

I don't know but tax relief on pensions is income tax relief, so if you have not paid higher rate income tax and only paid higher rate CG tax then I would guess you don't qualify.
However your pensions contributions (gross of basic rate tax relief) do push up your higher rate tax threshold, so effectively you would get some CG tax relief (reduce from 28% to 18%) for the amount of the uplift.

I'm guessing but I know how it works for me is that it pushes up the higher rate threshold so for some income I pay 20% instead of 40%, hence getting the relief.

Interesting article here from the Institute of Fiscal studies "Solutions to the taxing issue of capital gains." Quite a nice overview of the key issues and how CGT could/should have been implimented.

http://www.ifs.org.uk/publications/4999

Although 2006-2007 are not the latest figures, what seems clear is that quoted and unquoted shares account for approx 65-70% of HM treasury CGT receipts. I would not be surprised if there is more focus on this particular asset class in the next budget.

JamesU