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HMRC internal manual

Capital Gains Manual

Rates of tax: from 23 June 2010 onwards: extending the basic rate band

ITA07/S10(6)

Gains that accrue on or after 23 June 2010 can be taxed at 18% to the extent that any part of an individual’s basic rate band remains unused after set off against income. The basic rate band is set at £37,400 for 2010-11 but it can be extended in two circumstances

  • where payments are made that qualify for gift aid relief (ITA07/S414(2))
  • where relief at source is given for a pension contribution (FA04/S192(4)), see RPSM05101330.

Where the basic rate band is extended a greater amount of gain will be taxed at 18%.

Example

An individual has income after allowances of £30,000 in 2010-11. She realises a gain of £70,000 in December 2010 and makes a gift to charity of £40,000 in January 2011 that qualifies for gift aid relief. The annual exempt amount is £10,100 and the basic rate band is £37,400.

The amount of the gain that is chargeable to Capital Gains Tax is £59,900 (£70,000 less £10,100).

The gift is treated as having been made after deduction of income tax at the basic rate of 20% (ITA07/S414(2)(a)). The basic rate band is extended by an amount equal to the grossed up amount of the gift (ITA07/S414(2)(b)). The grossed up amount of the gift is £50,000 (£40,000 x 100/80).

The basic rate band becomes £87,400 (£37,400 plus £50,000).

The amount of the basic rate band that can be used against gains is £57,400 (£87,400 less £30,000).

The amount of the gain that is taxed at 28% is £2,500 (£59,900 less £57,400).

So the amount of Capital Gains Tax payable is £11,032 (£57,400 at 18% plus £2,500 at 28%).