how are capital gains taxed

hparker

Some questions about how CGT is calculated and how it works in tandem (or not) with income tax.

I have seen this example given for a CGT calcuation:
Earnings income £25,000
Taxable capital gain on BTL property after expenses and CGT allowance: £83,100
Taxed as:
£21,350 (Threshold for Basic Rate income tax £46,350-£25,000 = £21,350) x 18%
£71,650 x 28%

Questions:
Does this mean that any "unfilled" income in income tax bands are used to determine how much capital gain fall in Basic and Higher Rate capital gains tax bands?

If so, does the same apply to capital gains on non-residential (10% for Basic Rate tax payers, 20% for Higher Rate tax payers) i.e. unused income tax bands in the Basic Rate or Higher Rate Band determine how much CGT is paid at 10% and how much at 20%?

I had thought income tax bands and allowances were not to be used for capital gains tax and the two taxes were to be treated separately. But maybe not?

Is there a required 'order' for taxing residential gains v non-residential gains. Residential investment gains are taxed at a higher rate of tax, so if you have both residential investment gains and other capital gains, can the more highly taxed residential gains always be reduced "first" by the £11,700 CGT tax free allowance?

"Any capital gains will be included when working out your tax status for the year"
So if you had significant capital gains, e.g. £200,000, plus £30,000 earned income, £10,000 dividend, after the £11,850 Personal Income Tax allowance, do the £200,000 capital gains force all the excess income into the 45% Additional Rate income tax band?

Tom99

hparker wrote: »

Is there a required 'order' for taxing residential gains v non-residential gains. Residential investment gains are taxed at a higher rate of tax, so if you have both residential investment gains and other capital gains, can the more highly taxed residential gains always be reduced "first" by the £11,700 CGT tax free allowance?

Yes, you can choose the gain taxed at the higher rate to use your allowance against.

Sibbers123

hparker wrote: »

Questions:
Does this mean that any "unfilled" income in income tax bands are used to determine how much capital gain fall in Basic and Higher Rate capital gains tax bands?

Yes

hparker wrote: »

If so, does the same apply to capital gains on non-residential (10% for Basic Rate tax payers, 20% for Higher Rate tax payers) i.e. unused income tax bands in the Basic Rate or Higher Rate Band determine how much CGT is paid at 10% and how much at 20%?

Yes

hparker wrote: »

I had thought income tax bands and allowances were not to be used for capital gains tax and the two taxes were to be treated separately. But maybe not?

No, same tax bands are used for income and gains.

hparker wrote: »

Is there a required 'order' for taxing residential gains v non-residential gains. Residential investment gains are taxed at a higher rate of tax, so if you have both residential investment gains and other capital gains, can the more highly taxed residential gains always be reduced "first" by the £11,700 CGT tax free allowance?

No (except entrepreneurs relief which uses any unused basic rate band first). 9 times out of 10 it makes no difference in the order you tax the gains - the difference between the lower rates and higher rates is 10% regardless whether the gains are non-residential gains or residential property gains.

You can offset the annual exemption of £11,700 against the residential gains first.

hparker wrote: »

"Any capital gains will be included when working out your tax status for the year"
So if you had significant capital gains, e.g. £200,000, plus £30,000 earned income, £10,000 dividend, after the £11,850 Personal Income Tax allowance, do the £200,000 capital gains force all the excess income into the 45% Additional Rate income tax band?

No - gains are always taxed after income.

hparker

Thanks.

So if earned income, interest, dividends, pension totalled £10,850 leaving £1,000 of your £11,850 Personal Income Tax Allowance remaining then (ignoring possible reliefs) a £50,000 residential capital gain would be taxed:

£1,000 within unused Personal Income Tax Allowance is taxed at 18% CGT (the Basic Rate) = £180
£34,500 is taxed at 18% (the whole unused Basic Rate income tax band) = £9,660
£14,500 is taxed at 28% = £4,060
Total = £13,900

Also to confirm please, capital gains is not counted as income for the Income Tax Personal Allowance "taper" that starts at £100,000 and reduces for every £2 earned over that?

00ec25

hparker wrote: »

£1,000 within unused Personal Income Tax Allowance is taxed at 18% CGT (the Basic Rate) = £180
£34,500 is taxed at 18% (the whole unused Basic Rate income tax band) = £9,660
£14,500 is taxed at 28% = £4,060
Total = £13,900

correct
unused income tax personal allowance does not mean you don't pay CGT on your gain, instead it does what you show, effectively it extends the size of the basic rate tax band for CGT.

hparker wrote: »

Also to confirm please, capital gains is not counted as income for the Income Tax Personal Allowance "taper" that starts at £100,000 and reduces for every £2 earned over that?

correct
capital gains is not part of your taxable income
https://www.gov.uk/income-tax
and taxable income is the start point for the purposes of calculating your adjusted net income upon which the taper applies
https://www.gov.uk/guidance/adjusted-net-income#what-is-adjusted-net-income