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  • 2007-08 Capital Gains Tax rates and allowances

2007-08 Capital Gains Tax rates and the annual tax-free allowance

For the 2007-08 tax year the rates of tax you used depended on the level of your combined income and gains. In addition, you may get Indexation Allowance and Taper Relief on some gains.

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Tax-free allowances for Capital Gains Tax

In 2007-08 the annual tax-free allowance (known as the Annual Exempt Amount) was £9,200 for individuals, personal representatives and trustees for disabled people.

It was £4,600 for other trustees.

Personal representatives got the Annual Exempt Amount for the tax year in which an individual died and the next two tax years.

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Rates for Capital Gains Tax

In 2007-08, if you were dealing with your own tax affairs or were a trustee for a disabled person, you needed to look at income and gains together to work out the tax due. There were three different rate bands that you may have had to use to work out your Income Tax and Capital Gains Tax.

Personal representatives and most other trustees paid Capital Gains Tax at a flat rate of 40 per cent.

The three tax rate bands

There were three different tax rate bands for your income and gains in 2007-08.

Before working out the rate bands, you first deducted any tax-free allowances and reliefs that you were entitled to.

  1. Starting rate band. You used this first. You allocated it against your income and your gains up to an amount of £2,230.
  2. Basic rate band You used this next. You allocated it against your income and your gains that were more than £2,230 - up to an amount of £34,600. So a total of £32,370 income and gains (£34,600 less £2,230) could fall into this rate band.
  3. Higher rate band. You used this last. You allocated it against any remaining income and gains that were over £34,600.

You always allocated each rate band against your income first - you then used any unused amount of the rate band against your capital gains.

Example 1

  • You first allocate the rate bands against your income.

Total income, after deducting allowances and reliefs, was £20,000:

  • £2,230 is taxed at the starting rate
  • the remaining £17,770 (£20,000 less £2,230) is taxed at the basic rate
  • You then allocate the rate bands against your gains.

Total gains, after the tax-free allowance and reliefs, were £10,000:

  • you have £14,600 of the basic rate band left, after covering your income (£32,370 less £17,770 used against your income)
  • the basic rate band left is enough to cover your gains of £10,000, so they all fall within the basic rate band

Example 2

  • You first allocate the rate bands against your income.

Total income, after deducting allowances and reliefs, was £30,000:

  • £2,230 is taxed at the starting rate
  • the remaining £27,770 (£30,000 less £2,230) is taxed at the basic rate
  • You then allocate the rate bands against your gains.

Total gains, after the tax-free allowance and reliefs, were £40,000:

  • you have £4,600 of the basic rate band left, after covering your income (£32,370 less £27,770 used against your income)
  • so £4,600 of your gains fall within the basic rate band
  • the remaining £35,400 gains (£40,000 less £4,600) fall within the higher rate band

The rates of tax

Once you've worked out the tax rate bands to use against your capital gains, you can then work out the Capital Gains Tax due.

The three rates of tax for Capital Gains Tax are:

  • 10 per cent - for amounts that fall within the starting rate band
  • 20 per cent - for amounts that fall within the basic rate band
  • 40 per cent - for amounts that fall within the higher rate band

Example 1

In the first example above, you worked out that the £10,000 gains all fell within the basic rate band.

Amounts that fall within the basic rate band are taxed at 20 per cent.

The Capital Gains Tax due is £10,000 × 20% = £2,000.

Example 2

In the second example above, you worked out that of the £40,000 gains:

  • £4,600 fell within the basic rate band
  • £35,400 fell within the higher rate band

Amounts in the basic rate band are taxed at 20 per cent and amounts in the higher rate band are taxed at 40 per cent.

The Capital Gains Tax due is £15,080.

  • £4,600 × 20% = £920
  • £35,400 × 40% = £14,160
  • £920 + £14,160 = £15,180

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Indexation Allowance

Indexation Allowance allowed you to take account of inflation up to April 1998 on the cost of an asset.

From April 1998, Indexation Allowance was replaced by Taper Relief. Both Taper Relief and Indexation Allowance ceased to apply for disposals after 2007-08.

You qualified for Indexation Allowance if you owned your asset on 31 March 1998 and sold or disposed of it before 6 April 2008. You could use Indexation Allowance to reduce your gains to nil, but you couldn't use it to create or increase a loss.

Working out Indexation Allowance

You use the table below to look up the inflation figure to April 1998 for the month you bought or acquired the asset.

You then multiply the inflation figure by the cost - that's usually the amount you spent - to work out the Indexation Allowance.

Example

In June 1989, you bought a house for £10,000.

You use the table below to find the column for 1989. You then look down the column until you find the row for June.

You see that the inflation figure for June 1989 is 0.409.

The Indexation Allowance on your costs of £10,000 is therefore £4,090 (£10,000 × 0.409).

If you had other costs at different times, for example allowable improvement costs, you would work out the Indexation Allowance separately for each cost.

When you work out your Capital Gains Tax bill, you'll need both the original cost and the Indexation Allowance figures to work out your gain or loss.

Table: Inflation factors to April 1998
Date cost
incurred		 1982 1983 1984 1985 1986
Jan   0.968 0.872 0.783 0.689
Feb   0.960 0.865 0.769 0.683
Mar 1.047 0.956 0.859 0.752 0.681
Apr 1.006 0.929 0.834 0.716 0.665
May 0.992 0.921 0.828 0.708 0.662
Jun 0.987 0.917 0.823 0.704 0.663
Jul 0.986 0.906 0.825 0.707 0.667
Aug 0.985 0.898 0.808 0.703 0.662
Sep 0.987 0.889 0.804 0.704 0.654
Oct 0.977 0.883 0.793 0.701 0.652
Nov 0.967 0.876 0.788 0.695 0.638
Dec 0.971 0.871 0.789 0.693 0.632

 

  1987 1988 1989 1990 1991
Jan 0.626 0.574 0.465 0.361 0.249
Feb 0.620 0.568 0.454 0.353 0.242
Mar 0.616 0.562 0.448 0.339 0.237
Apr 0.597 0.537 0.423 0.300 0.222
May 0.596 0.531 0.414 0.288 0.218
Jun 0.596 0.525 0.409 0.283 0.213
Jul 0.597 0.524 0.408 0.282 0.215
Aug 0.593 0.507 0.404 0.269 0.213
Sep 0.588 0.500 0.395 0.258 0.208
Oct 0.580 0.485 0.384 0.248 0.204
Nov 0.573 0.478 0.372 0.251 0.199
Dec 0.574 0.474 0.369 0.252 0.198

 

  1992 1993 1994 1995 1996 1997 1998
Jan 0.199 0.179 0.151 0.114 0.083 0.053 0.019
Feb 0.193 0.171 0.144 0.107 0.078 0.049 0.014
Mar 0.189 0.167 0.141 0.102 0.073 0.046 0.011
Apr 0.171 0.156 0.128 0.091 0.066 0.040  
May 0.167 0.152 0.124 0.087 0.063 0.036  
Jun 0.167 0.153 0.124 0.085 0.063 0.032  
Jul 0.171 0.156 0.129 0.091 0.067 0.032  
Aug 0.171 0.151 0.124 0.085 0.062 0.026  
Sep 0.166 0.146 0.121 0.080 0.057 0.021  
Oct 0.162 0.147 0.120 0.085 0.057 0.019  
Nov 0.164 0.148 0.119 0.085 0.057 0.019  
Dec 0.168 0.146 0.114 0.079 0.053 0.016  

Indexation Allowance for companies

If you're a company, you pay tax on your gains as Corporation Tax. You're still entitled to the Indexation Allowance. It's available on all sales or disposals and applies for the whole period of ownership up to and including the month in which you dispose of the asset. Indexation Allowance for companies did not cease in April 2008.

Go to the Indexation Allowance tables for chargeable gains paid by companies

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More useful links

Find out more about Capital Gains Tax