Higher rate tax payer tax calculations

Trying to get my head around the uk tax rules now that we’re in a new tax year and our situation is changing due to increased SS, increased interest rates and reduced allowances on cap gains and interest income.  If your income from salary and pensions is below the higher rate threshold, but your interest income and cap gains take you above the threshold, how do you determine the tax percentages to use?  Do you just add all the income together and if it’s above £50270 then all cap gains over £6k is taxed at 33.75% and all interest over £500 is taxed at 40% ?  Surely that can’t be right ? Wouldn’t that mean someone with £50271 in income would potentially have a massively higher tax bill than someone with £50270?  I’m sure I must be missing something here?

Great questions and I’ll need to run a check but off the top of my head I believe Cap Gains are treated separately.

Wages, pensions, interest, dividends are all totaled up and money above the higher tax threshold is taxed at 40%. If you are in the higher band then when the capital gains are calculated you will pay the higher cap gains rates if you are in the higher tax band from the calculation above.

We are fortunate to be a married couple so before moving back we put all the stock funds in my wife’s name as most of our income is from my pensions so all the cap gains are covered by wife’s allowances and tax rates.

I do have a tax program, TaxCalc, so will run a scenario to mimic something like you suggest and will post the results here.

I tried a couple of scenarios.

1. Pension income of £55k, Interest of £5k, Cap gains of £20k, which after the 2022/23 tax free allowance is £7,700 taxable.
All £7,700 is taxed at 20%

2. Pension income of £40k, Interest of £5k, Cap gains same as above (£20k)
£5,270 is taxed at 10%
£2,430 is taxed at 20%

In scenario 2, the first £5,270 of the gain takes one to the start of the higher tax band so is taxed at the lower level.

Thanks Durhamlad, so that answers the capital gains, but what about the change in interest allowance? What if pension is £49272 and interest is £1000, no cap gains?

Thanks Durhamlad, so that answers the capital gains, but what about the change in interest allowance? What if pension is £49272 and interest is £1000, no cap gains?

Similar deal as before. The first £500 of interest takes you up to the higher rate tax band of £50,271

                                                          Income   Deductions   Taxable Amount

Taxable non-savings income   49,272.00   12,070.00   37,202.00
Taxable savings                             1,000.00        500.00        500.00
Totals                                           50,272.00   12,570.00   37,702.00

Calculate the tax due at each rate band
£      £
Basic   37,202.00   @ 20% =   7,440.40
Savings income
PSA   500.00   @ 0% =   0
Total Income Tax Due      7,440.40