Minimise CTG by contributing to a pension

spiderplant0

I want to take advantage of the current low CGT rate by selling some shares. To make sure I pay CGT at the basic rate, I was going to invest some of the proceeds in a pension so that my total taxable income is reduced. But I'm not sure if this is how it works..

Here is an example (20016/2017 tax year)...
My self-employment income: £30,000
Assume no savings or dividends income.
Personal allowance: £11,000
Pension contribution: £19,000
Therefore I pay no tax on my employment income.

My capital gains (after subtract costs): £43,100
CTG allowance: £11,100
Therefore taxable capital gains: £32,000
Upper limit of the basic rate band: £32,000
Therefore tax to pay on capital gains is all contained within the basic-rate band
= £32,000 x 10% = £3,200

[Deleted User]

spiderplant0 wrote: »

I want to take advantage of the current low CGT rate by selling some shares. To make sure I pay CGT at the basic rate, I was going to invest some of the proceeds in a pension so that my total taxable income is reduced. But I'm not sure if this is how it works..

Here is an example (20016/2017 tax year)...
My self-employment income: £30,000
Assume no savings or dividends income.
Personal allowance: £11,000
Pension contribution: £19,000
Therefore I pay no tax on my employment income.

The above is way off the mark. Your tax bill would be (£30000 less £11000) at 20% which is £3800.

You would pay £15200 to your pension provider and £3800 tax relief would be added to make the gross premium £19000. The contribution does not eliminate your tax bill!!!!! You receive the tax relief as an addition to your pension contribution.


My capital gains (after subtract costs): £43,100
CTG allowance: £11,100
Therefore taxable capital gains: £32,000
Upper limit of the basic rate band: £32,000
Therefore tax to pay on capital gains is all contained within the basic-rate band
= £32,000 x 10% = £3,200

Your basic rate band is £32000. This is increased by the gross pension contribution of £19000 making it £51000. You have made profits of £30000 which means that, after personal allowance of £11000, £19000 of your basic rate band is used. This leaves £32000 available and, in a roundabout way, your Capital Gains assumption is correct.

The tax bill, unfortunately, isn't.