Limited Companies
Capital Gains Tax Taper Relief
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
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 2007 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 (more than 2 complete years 25%) | £12,726 |
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 £1,410.40 - an effective rate of only just under 2.8%.
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 2007 for net proceeds of | £80,000 |
| Purchased 15 July 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 (9 complete years plus bonus year - 60%) | £23,787 |
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 |
