Tax on stocks income

Uriziel

I am trying to understand the way income tax works with stocks.

I read that the capital gains tax depends on the income tax band that you are in from your job.
But what I am struggling to understand is whether income from shares can.. push you into another tax bracket? I looked this up online and the response was a definite 'no' as people write that "capital gains tax is separate"?

If you earn £30k a year and you are in the 20% tax band, but you make £100k from stocks, does this mean you will only pay 18% capital gains tax  on those full £100k?

If you are paid £60k a year and you are in the 40% tax band, do you then pay 24% on the £100k?

I was assuming that, just like with income tax, you would pay 18% tax until you reach the 40% band amount and then the remainder would be taxed at 24% but it says that this is not correct online.

What I am trying to understand is... if you make a massive amount of money, for example £1m, would you literally be better off quitting your job to ensure that you are not in the 40% tax bracket when you pay capital gains tax on the stocks income?

masonic

Capital gains tax does use up any remaining basic rate tax band, and after that would be taxed at the higher rate. Were you relying on an AI summary when you were told otherwise? Perhaps you could share the source where it says a basic rate taxpayer would pay 18% on the whole of a £100k capital gain.

Even if you make a massive amount of money, you are better off having some of that income after tax than having none of it to avoid paying tax. There are only a few edge cases around the higher rate thresholds where you would be worse off by earning more.

ColdIron

Capital gains are not income unlike dividends which are periodic and regular payments. They are separate regimes with different rules and rates, although there is a small crossover when determining the rate of CGT. Don't confuse them

eskbanker

Uriziel said:

What I am trying to understand is... if you make a massive amount of money, for example £1m, would you literally be better off quitting your job to ensure that you are not in the 40% tax bracket when you pay capital gains tax on the stocks income?

The usual caveat applies, about letting the tax tail wag the dog, i.e. literally quitting employment purely to avoid being in a particular tax band is unlikely to be a rational or productive action.

kempiejon

eskbanker said:

Uriziel said:

What I am trying to understand is... if you make a massive amount of money, for example £1m, would you literally be better off quitting your job to ensure that you are not in the 40% tax bracket when you pay capital gains tax on the stocks income?

The usual caveat applies, about letting the tax tail wag the dog, i.e. literally quitting employment purely to avoid being in a particular tax band is unlikely to be a rational or productive action.

First make your massive amount of money.
Fill SIPPs taking some money off your tax bill and ISAs so gains are sheltered.
Many people making massive amounts of money from investments might consider work and income tax optional.

eskbanker

kempiejon said:

eskbanker said:

Uriziel said:

What I am trying to understand is... if you make a massive amount of money, for example £1m, would you literally be better off quitting your job to ensure that you are not in the 40% tax bracket when you pay capital gains tax on the stocks income?

The usual caveat applies, about letting the tax tail wag the dog, i.e. literally quitting employment purely to avoid being in a particular tax band is unlikely to be a rational or productive action.

First make your massive amount of money.
Fill SIPPs taking some money off your tax bill and ISAs so gains are sheltered.
Many people making massive amounts of money from investments might consider work and income tax optional.

Absolutely, but not needing to work is definitely a valid reason to quit, whereas doing so solely to try to avoid being in a particular tax band is unlikely to be sensible.