Capital Gains Tax 10% band when only income is from savings

gwapenut

I know the capital gains tax rate for share sales is 10% for basic rate tax payers, so the first £50,271 over the £6000 allowance would be taxed at 10% for a non-taxpayer.

I also know that income reduces this ~£50k threshold, and that income can come from savings.

What I do not know, is the scenario where my only income is from savings. As a retiree I know I can earn about £18570 from savings tax free.

MSE says the following:
"If you're a non-taxpayer – that is you have less than £12,570 income per year, you may be able to earn as much as £18,570 in savings interest tax-free"

They loosely use the terms non-taxpayer and income, which are not quite the same. My working assumption:
1. Because my capital gains are not income, I can still earn £18570 tax-free before paying income tax on my savings, even with £100k of capital gains
2. If my savings are less than £18570, I am therefore still not an income tax payer
3. Because I have not used any of my income tax basic rate band, the first ~£50k of my capital gains are stll taxed at just 10%.

The alternative scenario is that if I am earning, say, £17k in interest, some of this reduces the ~£50k 10% band for capital gains, and I effectively pay 10% more tax on my savings than I would in an ISA.

Does anyone know for sure how this works?

eskbanker

gwapenut said:

The alternative scenario is that if I am earning, say, £17k in interest, some of this reduces the ~£50k 10% band for capital gains, and I effectively pay 10% more tax on my savings than I would in an ISA.

This is my understanding of how it works - your savings interest is taxable income, even though you can avoid actually paying tax on it by use of allowances and nil-rate bands, so your capital gains are added to the interest income before applying the basic rate banding, as explained at:

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