Capital disposals of individuals, personal representatives and trustees may qualify for taper relief, depending on the length of time that the relevant asset has been held since
6 April 1998. This is the date when taper relief took over from indexation allowance (the RPI-based inflationary adjustment which still applies to capital disposals of companies).
Taper relief reduces the amount of gain subject to tax according to the number of whole years that an asset has been held since 6 April 1998. There are two entirely different scales of reduction, one for business assets and one for non-business assets.
Business assets from 6 April 2004
Business assets are
assets used for the purposes of a trade carried on by the taxpayer (alone or in partnership) or by a qualifying company or unconnected unincorporated trader
shares held in a qualifying company
Qualifying companies are:
unquoted trading companies
quoted trading companies in which the taxpayer is an officer or employee, or can exercise at least 5% of the voting rights
non-trading companies in which the taxpayer is an officer or employee and does not have a material interest of more than 10% in the company
The definition of business assets was considerably more restrictive before 6 April 2000 and was further relaxed from 6 April 2004 – check with us if you have assets which may not have been business assets prior to 6 April 2000, as it is necessary to consider the complete period of ownership.
Business Assets Taper Relief
Period asset held (complete years)
Percentage of gain chargeable (%)
Equivalent tax rate for a higher rate taxpayer (%)
1
50
20
2 or more
25
10
Note: holding period starts from acquisition date, or 6 April 1998 if later.
Example
Business Asset Sold 20 May 2005 for net proceeds of £100,000
purchased 15 July 1995 at a cost of £45,000
indexation allowance (July 1995 to April 1998) £ 4,095
£ 49,095
Indexed gain £ 50,905
Taxable amount after taper relief £ 12,726
(more than 2 complete years 25%)
Note that, as the taper relief is given before the annual capital gains tax exemption, the net tax payable by the taxpayer (assuming no other gains, losses or other CGT reliefs need to be taken into account) will be no more than £1,810.40 – an effective rate of only just over 3.5%.
Non business assets
These are assets which do not qualify as business assets, and the taper relief is less generous:
Period asset held (complete years)
Percentage of gain chargeable (%)
Equivalent tax rate for a higher rate taxpayer (%)
1 or 2
100
40
3
95
38
4
90
36
5
85
34
6
80
32
7
75
30
8
70
28
9
65
26
10 or more
60
24
Note: holding period starts from acquisition date, or 6 April 1998 if later.
For assets held on 17 March 1998, an extra holding year is added
Example
Non-Business Asset Sold 20 May 2005 for net proceeds of £80,000
purchased 15 June 1993 at a cost of £35,000
indexation allowance (June 1993 to April 1998) £ 5,355
£ 40,355
Indexed gain £ 39,645
Taxable amount after taper relief
(7 complete years plus bonus year - 70%) £ 27,752
Apportionment
Where assets have qualified as business assets for only part of the period covered by taper relief, the gain is apportioned and the two rates of taper relief applied accordingly.
Example
An asset held from 1 May 1999 qualified as a business asset only from 1 May 2004 until disposal on 30 April 2009, realising a gain of £100,000. The taper relief is:
a) 5/10 at business asset rate of 75% £37,500
b) 5/10 at non-business asset rate of 40% £20,000
Total £57,500
Therefore the gain, net of taper relief will be £42,500
