Income vs CGT, and Income Tax Personal Allowance

mrodent33

I'm in a funny situation. 

Last year I inherited 00s of 000s of £, most of which is now sitting in GIA (non-tax-sheltered) accounts. The gain to date is well over the £12,570 income tax allowance. At the same time I'm aware that the October budget is likely to increase CGT rates, so ideally I'd like to sell most of these funds and then reinvest (as I understand it, they have to be reinvested in different funds under HMRC rules to qualify as real sales).

I also have a micro-company of which I'm the sole director, owner and employee. Normally I pay myself the LEL as a wage. But this year I'm contemplating not paying a wage at all, but instead using the sales from GIA accounts to lend the company £60k, in order to make a £60k director's SIPP contribution (directors' SIPP contributions are capped at £60k regardless of the director's wage).

But ... if I don't pay myself any wage it occurs to me that my Personal Allowance would be eaten up by CGT liabilities, not by wages. I don't understand how this works, and whether the suggested scenario I've just described would be tax inefficient. I.e. is it in some way more tax efficient to use up the Personal Allowance on a wage rather than on CGT?  Maybe someone can suggest a link on this subject?

eskbanker

CGT doesn't count towards your personal allowance for income tax, even though income is added to capital gains to determine the rate of CGT payable.

mrodent33

@eskbanker Thanks, really helpful. 

The relevant HMRC page appears to be here, and this:

"If this amount is within the basic Income Tax band, you’ll pay 10% on your gains (or 18% on residential property and carried interest). You’ll pay 20% on any amount above the basic tax rate (or 24% on residential property and 28% on carried interest)."

... so I'm hoping that "carried interest" doesn't apply and therefore up to the basic rate (gains - CG allowance + wage income) I'd pay 10% on gains from these GIA sales. The CG allowance is now a paltry £3000 for 24-25 as I understand it. 

I sold (and later reinvested) some of these funds before April 5 this year, to use up what was then the £6000 23-24 CG allowance. So the maths may well say I *should* pay myself some wage...

dales1

Yes, carried interest doesn't apply. (If it did, you would certainly know about it).

You need to fill your personal allowance with your estimated taxable interest income and estimated taxable dividend income, and use your wage for the remainder.

You can then sell shares to crystallise enough gains to use up the remainder of the basic rate band, and pay just 10% CGT on them, in case that tax rate goes up.

(People who are or might be higher rate taxpayers in future, could then sell more shares and pay just 20% CGT on the gains, in case that tax rate goes up. I am doing that).