Marginal Tax Rate & CGT

fcjf
fcjf Posts: 77
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I'm a higher rate tax payer and have been paying significant AVC's into my company DC pension via sal sac but never quite get to below the 40% tax band. In 2024-25 tax year I intend to sell a rental property which will incur CGT and have been considering if I can reduce the amount of GCT due by taking some cash out of an ISA to use towards increasing my pension contributions to get me below the 40% tax bracket so my marginal rate is 20%.

Is this allowed and how in practice how is the marginal tax rate calculated, is it based on accruals at the time of the capital gain or is it based on taxable income at the end of the tax year in which the gain was made?

As a separate question how does sal sac and the annual allowance work, so if I sal sac to £49k taxable income am I limited to paying £49k into my pension? My gross pay before pension contributions is £89k and gross rental income before mortgage interest relief is £8k.

Many thanks.

Comments

  • eskbanker
    eskbanker Posts: 29,932
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    Before going any further, do you recognise that even if you get your income down below the higher rate threshold, the chargeable gains are added to that income to determine the applicable rate of CGT, i.e. it's not as simple as CGT being charged at marginal rate?

    https://www.gov.uk/capital-gains-tax/rates
  • fcjf
    fcjf Posts: 77
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    eskbanker said:
    Before going any further, do you recognise that even if you get your income down below the higher rate threshold, the chargeable gains are added to that income to determine the applicable rate of CGT, i.e. it's not as simple as CGT being charged at marginal rate?

    https://www.gov.uk/capital-gains-tax/rates
    Nope, huge schoolboy error in my thinking there then! Although if I manage to increase pension contributions to the  maximum possible then it should put more of the gain into a lower tax bracket but then again I may be better off holding back some cash to continue to reduce taxable income below the 40% tax bracket in future tax years than reduce my CGT liability by 10% next tax year? 

    Thank you.
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