Capital Gains Tax rates and annual tax-free allowances
Each tax year you have an annual tax-free allowance – known as the ‘Annual Exempt Amount’. You only pay tax on total net gains above this amount, using the Capital Gains Tax rate for that tax year. You may qualify for Indexation Allowance for certain disposals before 6 April 2008.
Annual tax-free allowances
Nearly everyone who lives in the UK will get the Annual Exempt Amount. This allows you to receive some normally taxable gains 'tax-free'. There are different Annual Exempt Amounts for individuals (including personal representatives) and most trustees. The amounts are set for each tax year.
Annual Exempt Amount |
2007-08 (£) | 2008-09 (£) |
|---|---|---|
| Individuals, personal representatives & trustees for vulnerable persons | 9,200 | 9,600 |
| Other trustees | 4,600 | 4,800 |
Personal representatives get the Annual Exempt Amount for the tax year in which an individual dies and the next two tax years.
For 2008-09 and later years, you don't get the Annual Exempt Amount if you are not domiciled in the UK and claim the special 'remittance' basis of tax - which means you only pay Capital Gains Tax on gains you bring into the UK and gains on assets located in the UK. If you think this applies to you, please contact HM Revenue & Customs.
Tax rates and thresholds
2008-09
There is a single rate of Capital Gains Tax of 18 per cent for individuals, trustees and personal representatives.
2007-08
The rates of Capital Gains Tax for individuals for 2007-08 are 10 per cent, 20 per cent and 40 per cent depending on your income.
You must always work out your Income Tax liability before you work out your liability to Capital Gains Tax. The tax bands (see the table below) are first set against your income and what's left is set against your Capital Gains to work out your liability to Capital Gains Tax.
2007-08 Capital Gains Tax rates |
When to use it | 2007-08 tax bands |
|---|---|---|
| 10% | If the starting rate band has not been fully used against your taxable income, you can use the remainder to set against your capital gains | Starting rate band: £0-£2,230 |
| 20% | If the basic rate band has not been fully used against your taxable income, you can use the remainder to set against your capital gains | Basic rate band: £2,231-£34,600 |
| 40% | Once the starting rate bands and the basic rate band have been fully used, you pay Capital Gains Tax at 40% | Higher rate band: Over £34, 600 |
The rate of Capital Gains Tax for most trustees and all personal representatives is 40%.
An example
Your taxable gains after deducting the Annual Exempt Amount for 2007-08 are £50,600.
You work out your Income Tax liability first.
Your taxable income after deducting all personal allowances and reliefs, is £20,000.
The starting rate band is £0 to £2,230 and this is fully set against your income.
Basic rate tax is charged on £32,370 (£34,600 less £2,230) and you set £17,770 (£20,000 less £2,230) of this band against your remaining income.
You use the rest of the £14,600 of the basic rate band (£32,370 less £17,770) to set against your capital gains. This is taxed at 20%. You must pay 40% tax on the balance of £36,000 of your capital gains (£50,600 gains less £14,600)
You must pay Capital Gains Tax on your gains of £50,600, worked out as follows:
£14,600 at 20% = £ 2,920
£36,000 at 40% = £14,400
Total Capital Gains Tax due = £17,320
Find out more about Capital Gains Tax
Indexation Allowance
You will qualify for Indexation Allowance if you owned your asset on 31 March 1998 and disposed of it before 6 April 2008.
It works by taking account of inflation between March 1982 and April 1998 on the cost of the asset, including incidental purchase costs. From April 1998, Indexation Allowance was replaced by Taper Relief. Indexation can reduce your gains to nil, but it cannot create or increase a loss.
You can use the table below to look up the inflation figure to April 1998 for the month you bought or acquired the asset.
You multiply the inflation figure by the cost - usually the amount you spent - to work out the Indexation Allowance.
For example, you bought a house for £10,000 in June 1989. You look across the columns to find 1989 and then look down the column until you find the row for June.
Your inflation figure for June 1989 is 0.409. The Indexation Allowance is therefore £10,000 x 0.409 or £4,090.
If you had other costs at different times, for example allowable improvement costs, you would work out the Indexation Allowance separately for each cost.
| 1982 | 1983 | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | |
|---|---|---|---|---|---|---|---|---|
| Jan | 0.968 | 0.872 | 0.783 | 0.689 | 0.626 | 0.574 | 0.465 | |
| Feb | 0.960 | 0.865 | 0.769 | 0.683 | 0.620 | 0.568 | 0.454 | |
| Mar | 1.047 | 0.956 | 0.859 | 0.752 | 0.681 | 0.616 | 0.562 | 0.448 |
| Apr | 1.006 | 0.929 | 0.834 | 0.716 | 0.665 | 0.597 | 0.537 | 0.423 |
| May | 0.992 | 0.921 | 0.828 | 0.708 | 0.662 | 0.596 | 0.531 | 0.414 |
| Jun | 0.987 | 0.917 | 0.823 | 0.704 | 0.663 | 0.596 | 0.525 | 0.409 |
| Jul | 0.986 | 0.906 | 0.825 | 0.707 | 0.667 | 0.597 | 0.524 | 0.408 |
| Aug | 0.985 | 0.898 | 0.808 | 0.703 | 0.662 | 0.593 | 0.507 | 0.404 |
| Sep | 0.987 | 0.889 | 0.804 | 0.704 | 0.654 | 0.588 | 0.500 | 0.395 |
| Oct | 0.977 | 0.883 | 0.793 | 0.701 | 0.652 | 0.580 | 0.485 | 0.384 |
| Nov | 0.967 | 0.876 | 0.788 | 0.695 | 0.638 | 0.573 | 0.478 | 0.372 |
| Dec | 0.971 | 0.871 | 0.789 | 0.693 | 0.632 | 0.574 | 0.474 | 0.369 |
|
|
1990 |
1991 |
1992 |
1993 |
1994 |
1995 |
1996 |
1997 |
|---|---|---|---|---|---|---|---|---|
| Jan | 0.361 | 0.249 | 0.199 | 0.179 | 0.151 | 0.114 | 0.083 | 0.053 |
| Feb | 0.353 | 0.242 | 0.193 | 0.171 | 0.144 | 0.107 | 0.078 | 0.049 |
| Mar | 0.339 | 0.237 | 0.189 | 0.167 | 0.141 | 0.102 | 0.073 | 0.046 |
| Apr | 0.300 | 0.222 | 0.171 | 0.156 | 0.128 | 0.091 | 0.066 | 0.040 |
| May | 0.288 | 0.218 | 0.167 | 0.152 | 0.124 | 0.087 | 0.063 | 0.036 |
| Jun | 0.283 | 0.213 | 0.167 | 0.153 | 0.124 | 0.085 | 0.063 | 0.032 |
| Jul | 0.282 | 0.215 | 0.171 | 0.156 | 0.129 | 0.091 | 0.067 | 0.032 |
| Aug | 0.269 | 0.213 | 0.171 | 0.151 | 0.124 | 0.085 | 0.062 | 0.026 |
| Sep | 0.258 | 0.208 | 0.166 | 0.146 | 0.121 | 0.080 | 0.057 | 0.021 |
| Oct | 0.248 | 0.204 | 0.162 | 0.147 | 0.120 | 0.085 | 0.057 | 0.019 |
| Nov | 0.251 | 0.199 | 0.164 | 0.148 | 0.119 | 0.085 | 0.057 | 0.019 |
| Dec | 0.252 | 0.198 | 0.168 | 0.146 | 0.114 | 0.079 | 0.053 | 0.016 |
|
|
1998 |
|---|---|
| Jan | 0.019 |
| Feb | 0.014 |
| Mar | 0.011 |
| Apr | |
| May | |
| Jun | |
| Jul | |
| Aug | |
| Sep | |
| Oct | |
| Nov | |
| Dec |
Indexation Allowance for companies
If you are a company you pay tax on chargeable gains as Corporation Tax. Indexation Allowance is available on all disposals and applies for the whole period of ownership up to and including the month in which you dispose of the asset.
Find out more about Capital
Gains Tax
Go to the Indexation Allowance tables
for chargeable gains paid by companies
