I was made redundant 6th April 2012 and plan to take at least 6 months off. As my redundancy payment was over £42,500, am I considered a higher rate tax payer for 2012-13, even if I do not work during this year? This has knock-on effects for other taxes eg CGT.
The rate of Capital Gains Tax (CGT) at which any gain is taxed depends on your overall income for the respective tax year. The CGT rate is:
• 18% for basic rate income tax payers
• 28% for higher rate income tax payers
However, if you are a basic rate taxpayer by virtue of your income, but your taxable capital gain pushes you over the threshold above which income tax is levied at 40% (£42,835 taxable income in 2012/13), you will pay the higher CGT rate of 28% on the any of gain above the threshold .
So only the taxable part of any redundancy payment should matter when it comes to CGT. Don’t forget the first £30,000 of a redundancy is ordinarily free from income tax. Obviously don’t forget that you may become a high rate tax payer later in the year if you get another job – which will obviously impact on the CGT rate you pay if you crystallise any gains.
I hope that helps