Quick question on capital gains

PokerPlayer111

If a person earns 8k income and has 100k capital gains for that tax year do they pay the same capital gains tax £ amount for that tax year as a person earning 10k with a 100k capital gain? Assuming all liquidated assets are the same and income is from same source etc.

Keep_pedalling

The person on £10k would pay £200 more as they would be paying the higher CGT rate on £2000 more of their gain.

[Deleted User]

Keep_pedalling wrote: »

The person on £10k would pay £200 more as they would be paying the higher CGT rate on £2000 more of their gain.

I find myself disagreeing. Do they not both pay £34500 at the lower rate and £65500 at the higher rate? One has a personal INCOME TAX allowance of £8000 while the other has £10000. Their taxable income, including Capital Gains, is £100000 each.

However on looking at HMRC website I do not agree with what is stated there also.

Example

Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,300. Your gains aren!!!8217;t from residential property.

First, deduct the Capital Gains tax-free allowance from your taxable gain. For the 2018 to 2019 tax year the allowance is £11,700, which leaves £600 to pay tax on.

Add this to your taxable income. Because the combined amount of £20,600 is less than £45,000 (the basic rate band for the 2018 to 2019 tax year), you pay Capital Gains Tax at 10%.

This means you!!!8217;ll pay £60 in Capital Gains Tax.

https://www.gov.uk/capital-gains-tax/rates

Surely the basic rate band is £34500? Do they mean 'after deducting your personal allowance and personal reliefs?', Not a clear explanation at all.

polymaff

For 18/19 it is extremely unlikely - I suspect - that any combination of BRB, allowances and reliefs would be £45,000.

But I could be wrong.

Keep_pedalling

[Deleted User] wrote:

I find myself disagreeing. Do they not both pay £34500 at the lower rate and £65500 at the higher rate? One has a personal INCOME TAX allowance of £8000 while the other has £10000. Their taxable income, including Capital Gains, is £100000 each.

However on looking at HMRC website I do not agree with what is stated there also.

Example

Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,300. Your gains aren!!!8217;t from residential property.

First, deduct the Capital Gains tax-free allowance from your taxable gain. For the 2018 to 2019 tax year the allowance is £11,700, which leaves £600 to pay tax on.

Add this to your taxable income. Because the combined amount of £20,600 is less than £45,000 (the basic rate band for the 2018 to 2019 tax year), you pay Capital Gains Tax at 10%.

This means you!!!8217;ll pay £60 in Capital Gains Tax.

https://www.gov.uk/capital-gains-tax/rates

Surely the basic rate band is £34500? Do they mean 'after deducting your personal allowance and personal reliefs?', Not a clear explanation at all.

My understanding is the higher rate kicks in once the combined income and gain exceeds the higher rate (£46,350). I could be wrong here as I can’t find any such examples on the web, probable because people on such low incomes rarely have to worry about such big gains.

00ec25

PokerPlayer111 wrote: »

If a person earns 8k income and has 100k capital gains for that tax year do they pay the same capital gains tax £ amount for that tax year as a person earning 10k with a 100k capital gain? Assuming all liquidated assets are the same and income is from same source etc.

since you state these figures are EARNINGS one has to assume that you mean they are the gross figures subject to income tax,

you have not explained if the gain arises from property or non property. The following assumes it is not property and thus incurs CGT @ 10% and/or 20% (not 18% and/or 28%)

in which case the correct answer (using 18/19 tax rates) is both will pay exactly the same:
Income tax allowances/bands
first £11,850 tax free
next 34,500 taxed @ basic rate tax
amounts above (11,850 + 34,500) 46,350 taxed @ higher rate

Person A 8k "earnings"
earnings amount subject to basic rate tax = NIL (11,850 - 8,000 = nil)
amount of basic rate tax band remaining for CGT purposes 34,500

CGT gain 100k - CGT allowance 11,700 = 88,300
CGT payable @ basic rate
34,500 @10% = 3,450
CGT payable @ higher rate (88,300 - 34,500) = 52,800 @ 20% = 10,560

total CGT payable £14,010

person B "earnings" 10k
earnings amount subject to basic rate tax = NIL (11,850 - 10,000 = nil)
amount of basic rate tax band remaining for CGT purposes 34,500

CGT payable = same as person A

00ec25

[Deleted User] wrote:

Surely the basic rate band is £34500? Do they mean 'after deducting your personal allowance and personal reliefs?', Not a clear explanation at all.

what you have not picked up is the order of events

1. establish what tax band the person falls into for income tax purposes

2. establish how much, if any, of the basic rate income tax band remains AFTER calculating the taxable income earnings (gross earnings less income tax personal allowance)

3. assuming there is residual basic rate band, apply CGT at the basic rate to the net gain (gross gain less CGT allowance) up to the value for the basic rate band

4. apply CGt at the higher rate to the amount in excess of the basic rate band

a more useful question from the OP would be to compare person A with 8k "earnings" with person C who has 20k earnings

in that case person C would look like this:
taxable income = 20 - 11,850 = 11,830
amount of basic rate band remaining 43,500 - 11,830 = 31,670

taxable gain (100 - 11.7)= 88.3
CGT @ basic rate 31,670 @10% = 3,167
CGT @ higher rate = 88,300 - 31,670 = 56,630 @ 20% = 11,326

Comparison 100k gross gain all 3 persons...
person A CGT payable 10,560
person B CGT payable 10,560
person C CGT payable 14,493

[Deleted User]

00ec25 wrote: »

what you have not picked up is the order of events

1. establish what tax band the person falls into for income tax purposes

2. establish how much, if any, of the basic rate income tax band remains AFTER calculating the taxable income earnings (gross earnings less income tax personal allowance)

3. assuming there is residual basic rate band, apply CGT at the basic rate to the net gain (gross gain less CGT allowance) up to the value for the basic rate band

4. apply CGt at the higher rate to the amount in excess of the basic rate band

a more useful question from the OP would be to compare person A with 8k "earnings" with person C who has 20k earnings

in that case person C would look like this:
taxable income = 20 - 11,850 = 11,830
amount of basic rate band remaining 43,500 - 11,830 = 31,670

taxable gain (100 - 11.7)= 88.3
CGT @ basic rate 31,670 @10% = 3,167
CGT @ higher rate = 88,300 - 31,670 = 56,630 @ 20% = 11,326

Comparison 100k gross gain all 3 persons...
person A CGT payable 10,560
person B CGT payable 10,560
person C CGT payable 14,493

Thanks - good to see that I am not doting!

PokerPlayer111

thanks all