Just wondering if anyone else has found themselves in a similar position? My employment income is at a level where I pay basic rate income tax. I have some rental properties and the income from them, when added to my employment income, mean that I would pay 40% income tax. So, each year I make SIPP contributions to (legally!) avoid paying the higher rate of tax – I declare everything on my self-assessment form. The SIPP contributions offset against my other income, which means I don't pay income tax at 40%.
So far, so good.
I have now sold a property and am liable to pay CGT. This is charged at different levels, according to your tax band (18% for standard rate, 28% for higher rate). I was expecting to be charged CGT at the 18% rate as I am not paying 40% income tax, HOWEVER the CGT calculation on the .gov website indicates I will be charged at the higher rate. This is because my tax code does not take account of the pension contributions and the CGT calculation includes income from all sources – with no ability to offset SIPP contributions against income. Overall, this does not feel right – why should I pay a higher rate of CGT when I don’t pay higher rate income tax? Do I need to pay the higher amount and then reclaim at the end of the tax year? Does anyone have any experience or knowledge in this area? All suggestions welcome!