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Find out more'Will my capital gains increase the tax on my savings?'
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It’s possible that I’ll have a large capital gains tax (CGT) liability in this tax year.
I’m a basic-rate taxpayer and have quite a bit of savings interest, which I'm worried will be taxed.
What rate of CGT will I pay, and will the gain reduce my tax-free personal savings allowance?
A Which? Money member
'It's your income that matters, not your capital gains'
Samm Galloway, Which? money expert, says…
To recap: your personal savings allowance is the amount of savings interest you can earn each year without paying tax: it's £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. Above it, you'll be charged income tax.
For capital gains, everyone gets a tax-free allowance of £3,000, and gains above this will be taxed at the rates of either 18% or 24%.
Just because you pay the basic rate of tax on your income, this doesn’t mean that the whole of your gain will all be taxed at the lower rate of 18%.
If it’s only the capital gain that has taken you above £50,270, then your personal savings allowance will remain at the basic-rate taxpayer level
If the gain is large enough that, added to your income, it uses up any remainder of the basic-rate tax band (up to £50,270 per tax year), then anything over this threshold would be taxable at the higher rate of 24%.
The good news is that your personal savings allowance won’t be affected.
As long as your income is in the basic-rate tax band and it’s only the gain that has taken you above this threshold, then your personal savings allowance will remain at the basic-rate taxpayer level of £1,000, rather than reducing to the higher-rate taxpayer level of £500.
- Find out more: pay no tax on savings interest with a cash Isa
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