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 Taper relief was first brought in with effect from 5th April 1998 and replaced indexation for individuals, partnerships, trusts and estates. It does not apply to Limited Companies to whom indexation continues to apply.
Since then it has been extended further and is now extremely attractive for business assets, reducing the maximum capital gains tax rate for those entitled to the full business asset taper relief after just 2 years of holding the asset to just 10%..
The taper relief reduces the chargeable gain on a sliding scale in line with the number of complete years the asset has been held, either from the date of acquisition or 5th April 1998 if later. The maximum relief is achieved after 2 years for business assets and 10 years for non-business assets.
This is shown in the following table...
| |
% of gain relieved |
| Complete years held after 5/4/1998* |
Business Assets |
Non-Business Assets |
| 1 |
50 |
0 |
| 2 |
75 |
0 |
| 3 |
75 |
5 |
| 4 |
75 |
10 |
| 5 |
75 |
15 |
| 6 |
75 |
20 |
| 7 |
75 |
25 |
| 8 |
75 |
30 |
| 9 |
75 |
35 |
| 10 or more |
75 |
40 |
| * Including one bonus year for non-business assets held on 17 March 1998 |
The period up to 5th April 1998 receives indexation allowance and the taper is applied to the gain after indeaxtion allowance.
In addition any losses of the current year and brought forward losses are set-off against gains of the current year before taper relief is applied.
In arriving at the length of the holding period the following factors can have an effect...
- Where there is a transfer between spouses or civil partners, the period is the total period of the combined ownership of both.
- Where roll-over relief is applied to a replacement asset, only the length of ownership of the replacement asset is considered.
- Where there is holdover relief on a gift such as on incorporation, it is only the new owner's period of ownership that is taken into account so incorporating at any time in the 2 years before a sale can be a significant mistake.
- For gains on disposals that are deferred by investment into a Venture Capital Trust, the period used is that of the original asset on which the gain arose.
Business Assets
It is clearly extremely beneficial to have an asset classified as a business asset and it is important to take expert advice on whether you qualify and how to remain qualified for business asset purposes. The following gives a broad guide to what qualifies as business assets...
- Assets used for a trade carried on by the taxpayer or a company that is a qualifying company. An asset let to an unquoted trading company can qualify even if there is no connection with the trading company.
- Assets used in employment by an employee that works for a trading employer.
- Shares in an unquoted trading company including those on AIM. Particular care needs to be paid if the company has a large amount of investments and it may be better to separate out any trading element.
- Shares in a quoted trading company in which the taxpayer is an employee and has more than 5% of the voting rights.
- Shares in a non-trading company where the taxpayer is an employee and does not have a material interest (10%) in the company.
Where an asset has not been a business asset throughout its period of ownership or from 6th April 1998 if later, it is necessary to apportion the gain to business and non-business periods. The same applies to assets used partly for and partly not for business purposes.
How we can help you
We can assist you with the planning of taper relief to maximum effect and assisting in any disputes over the amount of taper relief available.
Got a Question?
If you have any queries on any of the above, please ask a question
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