Tax on shares

pip895

Worth pointing out that if you are having to calculate capital gain on OEICS held outside an ISA it is worth investing in income versions of the fund and avoiding accumulation funds.

Working out the gains on accumulation funds is a nightmare!

bowlhead99

OPENSPACES wrote: »

OK but at what stage do you move from paying 10p to 20p. The former is stated as being for basic rate payers but does there not come a time when your ordinary income plus CGT gains takes you over the lower limit and into the higher banding ?

PS the HMRC web site indicates that CGT does get added to your taxable other income for banding purposes viz

If this amount (Capital Gain plus taxable income) is within the basic Income Tax band (up to £45K) you’ll pay 10% on your gains. You’ll pay 20% on any amount above this.

Yes that's right, to determine whether you're a basic rate payer or a higher rate payer for the purposes of 'is my gain taxed at 10% or 20%', you look at your income and pile your net gains on top of the income. and see how high the pile goes.

For example if you had £40k of income and £9k of net, non-exempt gains, the gains would be the top slice of what's being taxed; you would say that the part of the gains that fitted into the "up to £45k, I'm not high rate tax bracket yet" bracket would be £5k, and the bit that didn't fit in the brackets below that high rate tax bracket would be £4k.

So it's not that you'd pay 10% tax on the £9k or 20% tax on the £9k. You'd pay basic rate CGT (10%) on the first £5k, and then you'd pay higher rate CGT (20%) on the next £4k (the bit for which you have so much income and gains combined that you can no longer claim to be in the lower tax bracket).

OPENSPACES wrote: »

The bit I am not sure of is , is the CGT allowance excluded from these calculations or is it counted as part of the total income calculation?

What you're thinking about there, the £11,300 is not an allowance but an exemption. Basically your first £11.3k of gains is going to be exempted and taken out of the calculation entirely. So in the example above I said there were £9k of gains to pay tax on, but that could be the result of having £20.3k of gains and knowing that the first £11.3k was exempt so you only actually have £9k gains to pay tax on.

Or to extend for the obvious next question(s), perhaps there were £25.3k of net gains this year but you had £3k of losses this year and £2k of losses claimed in the prior year which couldn't be claimed against gains at the time because you didn't have enough gains at the time, so the losses were carried forward... so this year the £25.3k gross gains is only £9k of net gains after relief for current year losses, prior year losses and current year exemption.

You wouldn't try to stack the whole £25.3k of gross gains on top of your income to determine your tax bracket for CGT, because ultimately the only gains that are taxable will be the £9k of net gains after deducting reliefs and exemptions.

Reckless_Saving

If you're at the low end of the higher tax bracket and have additional tax liabilities (ie dividend tax), then using salary sacrifice (ie in to works pension) can help push you into the lower tax bracket - ie for dividend tax 7.5% instead of 32%.