Andrew Burnett

Thank you. I should point out that the HMRC guidance page is misleading. The page https://www.gov.uk/apply-tax-free-interest-on-savings says "You may also get up to £1,000 of interest and not have to pay tax on it, depending on which Income Tax band you’re in. This is your Personal Savings Allowance." In this situation there is £700 of savings. The total tax bill is £70 higher than it would be if this savings income did not exist, so even though it comes through a capital gains tax calculation, it is effectively a 10% tax on this savings income. There is no way that this situation could reasonably be described as "not having to pay tax" on this savings income. I suggest either the guidance needs to be changed or the method of calculation needs to be changed to accord with the guidance.

Thank you, this is what I had expected. However the HMRC tax calculation algorithm on the tax return website doesn't work like that. I will illustrate: Suppose Earned income £25,000 Savings income £700 Capital gain £100,000 So I would expect the basic rate band used by earned and savings income to be 25,000 - 12,570 = 12,430 as deducting the Personal Savings Allowance from the savings income leaves zero. Hence the remaining basic rate band is 37,700 - 12,430 = 25,270. This should be the capital gain charged at the lower rate. But actually the HMRC calculation here shows the remaining basic rate band as 24,570, i.e. deducting the savings income of 700 and ignoring the Personal Savings Allowance. Surely this is wrong?

Is the personal savings allowance not first deducted from the savings income (just as the personal allowance is deducted from the earned income)? If it is not deducted, then when there is a capital gain, savings income below the personal savings allowance is effectively being taxed, which contradicts the statements on the HMRC website and elsewhere that savings below the personal savings allowance are tax free. This would need to be reworded to say such savings are only tax free when there is not a large capital gain.

If I have income within the basic rate band, savings interest less than the tax-free allowance of £1000 and a large property capital gain, I understand that the amount of this charged at the lower rate of capital gains tax is calculated by subtracting my taxable income from the basic rate band. Does this calculation include my savings income? I would expect not, as otherwise the savings income would not be tax-free. But I have discovered that the tax calculation in the self-assessment system does include the savings income when calculating capital gains tax, effectively taxing this savings income at 10%. Is this correct?