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In accordance with the Capital Gains Tax Reform taper relief will not be calculated on gains made on or after 6th April 2008.
Taper relief replaces indexation allowance from April 1998 onwards for individuals and trusts. Indexation allowance is still applied to an asset acquired prior to April 1998 but the indexation stops at April 1998. The taper relief is given after deducting any indexation allowance and losses from the gain. There are two levels of taper relief, business use assets are eligible for higher rates of taper relief.
The definition of a business asset is one used for the purposes of a trade (or partnership) or by a qualifying company, an asset held for the purposes of a qualifying office or employment to which the client is required to devote substantially the whole of his time or shares in a qualifying company. A qualifying company is a trading company (or holding company) in which the client holds shares giving him at least 5% of the voting rights where he is a full-time working officer or employee or at least 25% otherwise.
Losses are set first against gains with the least taper relief. This ensures that maximum benefit is obtained from the losses.
The percentage of gains chargeable after taper relief are as follows:
| Number of years | Business Asset disposals before 6th April 2000 |
Business Asset disposals after 5th April 2000 and before 6th April 2002 |
Business Asset disposed after April 2002 |
Non Business Asset |
| 0 | 100 |
100 |
100 |
100 |
| 1 | 92.5 |
87.5 |
50 |
100 |
| 2 | 85 |
75 |
25 |
100 |
| 3 | 77.5 |
50 |
25 |
95 |
| 4 | - |
25 |
25 |
90 |
| 5 | - |
25 |
25 |
85 |
| 6 | - |
25 |
25 |
80 |
| 7 | - |
25 |
25 |
75 |
| 8 | - |
25 |
25 |
70 |
| 9 | - |
25 |
25 |
65 |
| 10 or more | - |
25 |
25 |
60 |
In this context the number of years is the number of complete years after 5/4/98 that the asset has been held. A bonus year is added for assets held prior to 17/3/98 however the bonus year is no longer taken into account for disposals of business assets after 6/4/2000.
For more information consult HMRC help sheet hs279.
Taper relief does not apply to limited companies.