I was dreading this month's UK budget, as I was fully expecting a radical cut to the Capital Gains Tax Threshold, but instead the government has frozen it at is current level of £12 500 until 2026.
I was expecting this to be cut to somewhere between £4000 - £8000, so a freeze is MOST acceptable!
If your capital gains are greater than that £12.5K threshold, the amount of tax you pay on the next chunk depends on your income.
If your combined income and CTG (above the tax free threshold) is less than £50 000 (the basic tax rate threshold in the UK) you then pay 10% on any further Capital Gains on the next £37.5 K (combined income and Capital Gains, NB you can't double count the two tax free amounts in this (income and CTG).
Because I now live in Portugal and have a super low cost of living, meaning my self-employed income floats (comfortably) around the £20K a year mark, this means that I could make additional capital gains of around £17.5K a year and only pay 10% tax on those gains, which in the grand global scheme of things isn't too bad at all.
So overall I can make annual capital gains of around £27.5K (around $35K) and only pay an average of 5% tax on that.
Paying more tax on income compared to Capital Gains - a bit fucked up?
In the UK you pay no tax on the first £12.5K of income, but after that you pay 20% on the next £37.5K up to £50K, from which point you pay 40% tax (where it becomes irrational to earn IMO).
With CTG however, you have the same tax free amount of £12.K but then only pay 10% up to £50K.
I don't know about you but this seems to me to be entirely fucked up. It basically amounts to taxing the working poor more than the wealthy.
The kind of people that earn just about £12.5K aren't your 'welfare scroungers' - they are the people working in the GIG economy, and probably in their 20s - getting taxed at 20%.
Meanwhile here I am - with wealth and in a position where I can maybe cash out slightly more than my £12.5K a year tax free amount for only 10% tax?
It's bizarre - and it hardly motivates me to work - being taxed twice as much on the income I get from that compared to CGT?
It might have been fairer to lower that threshold after all!?