Income & Capital Gains tax

nigelholl2

Hi, I'm a a long-time watcher, but a newbie to posting as I can usually find answers via Google. 
I manage my OH's tax matters, and have been struggling to find an answer to how capital gains effects income tax rates.
However I've just read some illuminating historic post on similar topics.
My understanding now is that they are two different classifications of tax, capital gains don't impact the income tax band that you pay, but income + capital gains can impact the rate that the capital gains is taxed.
Therefore I am now assuming that there will be no reduction in the standard personal tax or £1k savings interest allowances from the capital gains.

OH forecast incomings for 25-26 tax year
State Pension £11995
Savings Interest £8500

So income tax would only be payable on £20455- Tax allowance & Personal savings £1k allowance
Which works out to be roughly £6925 x20% tax = £1385

I would appreciate if someone could confirm that 

Dazed_and_C0nfused

nigelholl2 said:

Hi, I'm a a long-time watcher, but a newbie to posting as I can usually find answers via Google. 
I manage my OH's tax matters, and have been struggling to find an answer to how capital gains effects income tax rates.
However I've just read some illuminating historic post on similar topics.
My understanding now is that they are two different classifications of tax, capital gains don't impact the income tax band that you pay, but income + capital gains can impact the rate that the capital gains is taxed.
Therefore I am now assuming that there will be no reduction in the standard personal tax or £1k savings interest allowances from the capital gains.

OH forecast incomings for 25-26 tax year
State Pension £11995
Savings Interest £8500

So income tax would only be payable on £20455- Tax allowance & Personal savings £1k allowance
Which works out to be roughly £6925 x20% tax = £1385

I would appreciate if someone could confirm that 

There is no extra "allowance" for savings interest.  There are two 0% tax bands, one of which is known as the Personal Savings Allowance but it isn't an allowance in the normal sense.

If she has that income of £20,495 (don't know where £20,455 comes into this) then the State Pension is covered by the Personal Allowance and the first £575 of the interest uses the remaining Personal Allowance 

The balance of the interest would all then be taxed.

£5,000 x 0% (savings starter rate band)
£1,000 x 0% (savings nil rate band)
£1,925 x 20% (savings basic rate)

Total tax payable £385

The above assumes she hasn't applied for (or is receipt of) Marriage Allowance and hasn't made Gift Aid donations of more than £1,925 (gross).

Note this now means that £7,925 of her basic rate band has been used.  This could impact any Capital Gains tax liability.

Capital Gains will never affect her income tax liability.

LITRG is a good website to read up on stuff like this, they invariably explain things better than gov.uk manage.

nigelholl2

Dazed_and_C0nfused said:

There is no extra "allowance" for savings interest.  There are two 0% tax bands, one of which is known as the Personal Savings Allowance but it isn't an allowance in the normal sense.

If she has that income of £20,495 (don't know where £20,455 comes into this) then the State Pension is covered by the Personal Allowance and the first £575 of the interest uses the remaining Personal Allowance 

The balance of the interest would all then be taxed.

£5,000 x 0% (savings starter rate band)
£1,000 x 0% (savings nil rate band)
£1,925 x 20% (savings basic rate)

Total tax payable £385

The above assumes she hasn't applied for (or is receipt of) Marriage Allowance and hasn't made Gift Aid donations of more than £1,925 (gross).

Note this now means that £7,925 of her basic rate band has been used.  This could impact any Capital Gains tax liability.

Capital Gains will never affect her income tax liability.

LITRG is a good website to read up on stuff like this, they invariably explain things better than gov.uk manage.

Hi

Thankyou for your reply, and going one step further, by expanding on the savings tax arrangements, very informative & I now have a clear grasp of the subject, and can make the necessary allowances for tax that will be payable.

I fully agree with your comment on the LITRG website, I stumbled upon that after positing my initial query, and was looking into paying tax on savings when you only have the state pension as income, as my OH will fall outside of the Self Assessment system next year, when she will no longer have rental property income.

Again

Many thanks