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Where Taxpayers and Advisers Meet

Income tax + CGT

flummoxed
Posts:3
Joined:Sun Mar 17, 2019 9:02 pm
Income tax + CGT

Postby flummoxed » Mon Mar 18, 2019 1:51 pm

I used to think I had a basic understanding of income and CGT tax but after spending a couple of days of working out my tax position with the changes of the last few years, I'm totally brain-fogged. Doesn't take much to do that now, something to do with drifting towards senility I think.

I've calculated that by 5 April I'lll have received:
£6,359 from the state pension
£7540 in savings interest including some from P2P
£3211 from un-wrapped share dividends.

In addition, due to a take-over of a long-term holding of a stock held in the US, I received £21,100 to make a gain, if my calculations for years of re-invested $ divis are right, of £18,540. So a net £6840 liability after the £11,700 CGT allowance. I've also a couple of shareholdings with a combined loss of £2000 that I could sell to set against the gain and a holding in RBS with a loss of roughly another £2000. (That last one is more of a guestimate as it's going to be a nightmare to work out with various bonus issues, consolidations, and rights.)

I normally complete an on-line self-assessment form but haven't a clue how the personal and various other allowances and rates, and CGT interact with each other or what my tax position will be. Last year I transferred the new marriage allowance to my wife who normally pays basic rate tax. I'm not sure if I can, or should, do the same this year. Can I just opt for it and leave it to HMRC to decide if I'm entitled to do that?

Would much appreciate some guidance.

D&C
Posts:61
Joined:Thu Dec 22, 2016 10:04 pm

Re: Income tax + CGT

Postby D&C » Tue Mar 19, 2019 11:11 pm

Let's start with the income tax. Nothing you have posted suggest that you have any allowances other than the Personal Allowance (or a reduced Personal Allowance) which will be relevant.

But based on what you have told us your normal income tax liability will be £0.

I've calculated that by 5 April I'lll have received:
£6,359 from the state pension
£7540 in savings interest including some from P2P
£3211 from un-wrapped share dividends.

So total taxable income of £17,101.

I think using your Personal Allowance of £11,850 like this works to your best advantage.

£6,359 against State Pension
£4,280 against interest
£1,211 against the dividends
£11,850 used in total

This leaves two sources with income which needs to be taxed.

£3,260 interest all taxed at the savings starter rate of 0%
£2,000 dividends all taxed at the dividend nil rate of 0%

The alternative calculation if you have already applied for Marriage Allowance (it's too late for you to change your mind if you have) or decide to apply for 2018:19 for the first time on your Self Assessment return looks like this,

I've calculated that by 5 April I'lll have received:
£6,359 from the state pension
£7540 in savings interest including some from P2P
£3211 from un-wrapped share dividends.

So total taxable income of £17,101.

I think using your reduced Personal Allowance of £10,660 like this works best,

£6,359 against State Pension
£3,090 against interest
£1,211 against the dividends
£10,660 used in total

This again leaves two sources with income which needs to be taxed.

£4,450 interest all taxed at the savings starter rate of 0%
£2,000 dividends all taxed at the dividend nil rate of 0%

So if your figures are accurate it looks like two of the 0% tax rates mean you can still have the reduced Personal Allowance as a marriage allowance transferor and not make yourself worse off.

You cannot use the savings nil rate (aka Personal Savings Allowance) simply because you don't have sufficient taxable income to be able to benefit from this. It isn't something lower income individuals can make use of. Because they simply don't need it.

flummoxed
Posts:3
Joined:Sun Mar 17, 2019 9:02 pm

Re: Income tax + CGT

Postby flummoxed » Wed Mar 20, 2019 4:34 pm

Many thanks D&C for the very detailed reply. That's very helpful. The fog is starting to clear a bit.

The other point I wasn't sure about was whether CGT liabilies could be reduced beyond the normal CGT allowance by any 'leftover' from those other income allowances. I assume from your reply that they can't and CG tax is entire isolated from all that. So my £18,540 capital gain, less the £11,700 CGT allowance, will leave me with a liability of £6840 that I can only reduce by selling some other loss-making stocks or investments? I take it that there's no additional complication from the gain being from a US stock held in the US.

I'd been trying to avoid worrying about all those not-so-new rules. Looks like I'll have to start. Thanks.

Jholm
Posts:360
Joined:Mon Mar 11, 2019 4:22 pm

Re: Income tax + CGT

Postby Jholm » Wed Mar 20, 2019 6:19 pm

Hi,

Your recent comment above is correct in that you cannot use unused personal allowances against CGT; the two are treated entirely separate. Based on those figures, you would only be liable to the lower CGT rate of 10% so whether or not it is worth selling loss-making shares is your call.....

flummoxed
Posts:3
Joined:Sun Mar 17, 2019 9:02 pm

Re: Income tax + CGT

Postby flummoxed » Thu Mar 21, 2019 12:49 pm

Thank you J. As you say it's a fine call, and could easiy lose any saving by selling at the wrong price, but your confirmation of the position makes it much easier.


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