Does Capital gains Tax push you into higher tax bracket?

vienly

Hi All, I can't seem to find a straight answer from Google as I get conflicting answers from different sites. Can't find exact answer on HMRC website either...

This has probably been asked a million times but does Capital Gains Tax push you into higher tax bracket?

Say I earn PAYE £48000, and I make a Capital gain of £3000 which total is £51000. Would that push me into the higher tax bracket or does CGT not count?

I assume interest from bank savings count as income also?

Trying to work on my finances, thank you 

eskbanker

No, capital gains are added to taxable income only for the purposes of determining the rate of CGT payable, but the gain isn't actually income so doesn't affect your income tax banding, etc.

And yes, savings interest (except from ISAs) is taxable income.

vienly

Thank you, looks like I had it wrong all this time 

Vitor

The potential for confusion is because HMRC requires you to add capital gains to your income for the purpose of deciding which CGT rate applies (10% or 20% on most assets)

It works step by step like this:

1. HMRC looks at your taxable income for the year.
   Not for tax you’ve already paid, but simply to see how much of the basic-rate band has been “used up”.

2. The basic-rate band for 2024–25 ends at £50,270 (in England and Wales).
   Anything above that is higher-rate territory.

3. Now take your capital gain after deducting the annual allowance.
   Only the remainder is taxable.

4. That taxable remainder is split across the unused parts of the bands.

A concrete example makes it easier:

Income (wages, pension, divis, non-ISA interest etc,): £48,000
CGT allowance: £3,000
Gain before allowance: £10,000
Taxable gain: £7,000

How much basic-rate band is left?

Basic-rate ceiling: £50,270
Income already used: £48,000
Remaining "space": £2,270

That means:

• The first £2,270 of the gain is taxed at the basic CGT rate of 10%
• The remaining £4,730 spills over the £50,270 line and is taxed at the higher CGT rate of 20%

The income tax calculation works like this:

Personal Allowance - £12,570 tax-free.

Taxable income after allowance - £48,000 – £12,570 = £35,430.

This entire £35,430 sits inside the basic-rate income tax band, which runs up to £50,270.

Basic-rate income tax is 20%, so:

£35,430 × 20% = £7,086.

So the income tax on £48,000 (England/Wales) is £7,086.