In what order income is taxed: Salary,Interest,Dividend,CapitalGain

[Yuri F]

Hello all,

My situation:
Last day in this tax year left, trying to optimize before SA is locked down, having some excess over expensive threshold tax band and then only available flexibility to bring it down is to fix loss via shareholding (London Stock Exchange), e.g. sell at loss (markets went down recently) and then buy back (but liquidity on the only loss-making positions is terrible, therefore commission+levy+stamp_duty on fourth and back operation might drain 10-20% off current value, therefore increasing loses)..

So the question:
In what order income tax thresholds are filled for Self Assessment?
e.g. for marginally crossing 50K tax band threshold scenario, (obviously some allowances are toasted)
1) PAYE is taxed first (say 15K, net allowance 12.5K, except if above 100K)
2) Interest (say 2K net 1K allowance)
3) Dividend (say 20K net 2K allowance)
4) Capital Gain (say 20K net 12K allowance)

and for marginally crossing 150K+ threshold scenario
1) PAYE is taxed first (say 15K no allowance)
2) Interest (say 10K net 0.5K allowance)
3) Dividend (say 50K net 2K allowance)
4) Capital Gain (say 80K net 12K allowance)

So in what precedence these elements are ordered? What is taxed first and what last? (what actually falls over into higher band)
What category will fall into expensive band in 50K scenario and 150K income tax band scenario?

Thank you.

[eek]

Hello all,

My situation:
Last day in this tax year left, trying to optimize before SA is locked down, having some excess over expensive threshold tax band and then only available flexibility to bring it down is to fix loss via shareholding (London Stock Exchange), e.g. sell at loss (markets went down recently) and then buy back (but liquidity on the only loss-making positions is terrible, therefore commission+levy+stamp_duty on fourth and back operation might drain 10-20% off current value, therefore increasing loses)..

So the question:
In what order income tax thresholds are filled for Self Assessment?
e.g. for 50K tax band scenario, then another one for 150K scenario (obviously most allowances are toasted)
1) PAYE is taxed first (say 15K, net allowance 12.5K, except if above 100K)
2) Interest (say 2K net 1K allowance)
3) Dividend (say 20K net 2K allowance)
4) Capital Gain (say 20K net 12K allowance)

and for 150K+ scenario
1) PAYE is taxed first (say 15K no allowance)
2) Interest (say 10K net 1K allowance)
3) Dividend (say 50K net 2K allowance)
4) Capital Gain (say 80K net 12K allowance)

So in what precedence these elements are ordered? What is taxed first and what last?
What category will fall into expensive band in 50K scenario and 150K income tax band scenario?

Thank you.

Capital Gain isn't treated as income unless you are doing something very none standard that means it's income not a capital gain.

[Yuri F]

eek - interesting philosophical view
yet HMRC related questions imply a bit more substantiated answers, in deterministic form..

Anyway, managed to find one position with relatively high liquidity and low spread, so transactional losses were below 1%..
Turned it around in a middle of trading session just to be safe / avoid risks of higher tax bill..

I suspect capital gain is taxed last, at least with 70-80% confidence, but even if not - other excess anyway was reduced too..

[TheCyclingProgrammer]

Capital gains are not income. They are taxed entirely separately.

Dividends are taxed as the top slice of income however it is possible to allocate your tax free personal allowance to income in any way you see fit if doing so will result in a better tax outcome.

[eek]

eek - interesting philosophical view
yet HMRC related questions imply a bit more substantiated answers, in deterministic form..

Anyway, managed to find one position with relatively high liquidity and low spread, so transactional losses were below 1%..
Turned it around in a middle of trading session just to be safe / avoid risks of higher tax bill..

I suspect capital gain is taxed last, at least with 70-80% confidence, but even if not - other excess anyway was reduced too..

No it's not philosophical - a capital gain is taxed as a capital gain at the appropriate level which is likely to be 20% (but is 28% on residential property).

If however you trade shares regularly HMRC could and would treat your profits as income which would be taxed at 40% and that's the bit I was getting at in my first post.

The actual rules for working out what to do if you are a basic rate tax payer can be found at Capital Gains Tax: Capital Gains Tax rates - GOV.UK as I visited that to get the current CGT rates.

[jamesbrown]

Capital gains are not income. They are taxed entirely separately.

Dividends are taxed as the top slice of income however it is possible to allocate your tax free personal allowance to income in any way you see fit if doing so will result in a better tax outcome.

Is the full/correct answer.

[Yuri F]

Thanks guys, I think I'm getting it now, CG is part of SA nonetheless isn't part of IT and is taxed separately on a flat rate (net allowance) independently on IT band.
Not a day trading, just casual relocation every month, one-two trades during a week on avg, so shouldn't be hit within 40%..

[Iliketax]

Anyway, managed to find one position with relatively high liquidity and low spread, so transactional losses were below 1%..
Turned it around in a middle of trading session just to be safe / avoid risks of higher tax bill..

Did you find out about the CGT matching rules?

[Yuri F]

Iliketax - thank you for pointing this out, something I didn't knew, yeah - in this case looks all the hustle was for nothing (transactional loses are minimal anyway) - no gains, no loses.
Maximum I could do then - just reserving some amount after the sale for putting into ISA next Monday.
Something to keep in mind for next year then.

[Andy Hallett]

Hello all,

My situation:
Last day in this tax year left, trying to optimize before SA is locked down, having some excess over expensive threshold tax band and then only available flexibility to bring it down is to fix loss via shareholding (London Stock Exchange), e.g. sell at loss (markets went down recently) and then buy back (but liquidity on the only loss-making positions is terrible, therefore commission+levy+stamp_duty on fourth and back operation might drain 10-20% off current value, therefore increasing loses)..

Good old "Bed and Breakfasting" rules

Bed and Breakfast Deal Definition