I want to invest in a stock ETF, but I'm wondering if any profit I make from these investments is subject not only to the 20% Capital Gains Tax but also counts towards income and thus subject to Income Tax (45% for me) additionally.
So suppose I have 200,000GBP in stocks. How much is the government going to take from me in these 2 situations:
Situation 1: One year the stocks' value increases in value to 252,000.
That's 52,000 profit, and minus the 12,000 allowance leaves 40,000 to be taxed by CGT. Is the government going to take only 8,000 (CGT 20% of that 40,000)? Or it's going to take that 8,000 plus 23,400 (income tax 45% of the 52,000 total profit) for a total tax of 31,400?
Situation 2: One year the stocks' value increases in value to only 212,000, i.e. exactly the allowance.
Do I pay no tax on that, or I pay 5,400 (income tax 45% of the 12,000 profit)?
If one must pay Income Tax on top of CGT I don't understand why anyone would invest in equities at all, because 31,400 being taken from a 52,000 profit equates to a measly 3.6% net income from stocks when assuming a long-term annualised 9% value increase of the stocks. But the risk is relatively large in comparison.