Capital Gains Tax (CGT)

Do you sometimes have to pay CGT? Or do you own assets which might give rise to a chargeable capital gain when sold? If so then read on for important information about the CGT system.

Taper relief

The revision of the CGT regime in 1998 saw the introduction of taper relief. This has the effect of reducing the CGT charge on a disposal according to the period of ownership of the asset and the type of asset.

Amount of taper - non-business assets

Taper relief is given by reference to the number of complete years of ownership after 5 April 1998. In addition a bonus year is added where the asset was acquired before 17 March 1998 (Budget Day).

The taper relief table is as follows:

Number of complete years asset held after 5.4.98 (including ‘bonus’ where relevant) Non-business taper
%
1 0
2 0
3 5
4 10
5 15
6 20
7 25
8 30
9 35
10 or more 40

Definition of business asset

The following assets are currently eligible for business asset taper relief:

The definition of a business asset has changed several times since the introduction of taper relief.

Amount of taper - business assets

For disposals of business assets on or after 6 April 2002 taper relief is given as follows:

Number of complete years (after 5.4.98) Business taper
%		 Effective rate of CGT for higher rate taxpayer
%
Less than 1 0 40
1 50 20
2 or more 75 10

Change in the assets status

In some circumstances an asset will not wholly qualify for full business asset taper relief. This may be due to a change in the definition of business assets or because the asset has not always been used for a qualifying purpose. In these circumstances part of the gain will qualify for business asset taper and part for non business taper relief. Please contact us for further information on this point.

Main residence

An individual’s or married couple’s only or main residence including land up to half a hectare is exempt from CGT. If a property has not been your only residence throughout your period of ownership the relief may be restricted.

Periods of absence from your main residence may not qualify for the relief although the last three years of ownership will automatically qualify provided the property has qualified at some point during your ownership. In addition if a property has been let during any absences you may qualify for a further ‘letting relief’.

Tax Tip
If you have more than one home, you can choose which one should benefit from the CGT exemption. This requires an election and needs careful thought to ensure any available exemption is maximised.

Bed and breakfast - alternatives

Bed and breakfasting is the term used for the sale and almost immediate repurchase of the same shares. It used to be an effective way of realising gains which would be covered by the annual CGT exemption or to utilise losses. However changes to the CGT rules have rendered this ineffective.

Tax Tip
There are ways around this:

  • sell shares from your personal portfolio and repurchase through an ISA
  • a sale by one spouse followed by the repurchase in the name of the other spouse
  • wait 30 days before repurchase.

Deferring gains through EIS investments

The Enterprise Investment Scheme (EIS) scheme allows individuals to defer capital gains made on the disposal of any asset so long as the gain is reinvested in shares in an EIS qualifying unquoted trading company.

The deferred gain crystallises on a subsequent disposal of the shares unless certain conditions are breached before that time.

Please note: