The following articles have been extracted under a licence from HM Revenue & Customs website:
Introduction
Assets and disposals
Working out the chargeable gain
Reliefs (other than taper relief)
Allowable losses
Taper relief: qualifying holding period
Taper relief: business assets and non-business assets
Working out the tapered chargeable gains
Working out the amount chargeable to CGT
Working out the tax due
Post transaction valuation checks for CGT
Indexation allowance
Taper relief on disposals of business assets on or before 5 April 2000
Introduction
This series of articles tell you the basic rules of Capital Gains Tax (CGT) for individuals.
This article explains the taper relief available n disposals of business assets.
Disposals 6 April 1998 to 5 April 2000
The table below sets out the rates of taper relief for disposals of business assets on or after 6 April 1998 and on or before 5 April 2000.
|
Gains on disposals of business assets |
|
Number of whole years in qualifying period |
Percentage of Gain chargeable |
|
Less than 1 |
100 |
|
1 |
92.5 |
|
2 |
85 |
There cannot have been more than one whole year in the qualifying holding period for a disposal on or before 5 April 2000. If you were entitled to a bonus year, you should use the number of whole years plus the bonus year when using the table.
Disposals 6 April 2000 to 5 April 2002
The table below sets out the rates of taper relief for disposals of business assets on or after 6 April 2000 and on or before 5 April 2002.
|
Gains on disposals of business assets |
|
Number of whole years in qualifying period |
Percentage of Gain chargeable |
|
Less than 1 |
100 |
|
1 |
87.5 |
|
2 |
75 |
|
3 |
50 |
There cannot have been more than three whole years in the qualifying holding period for a disposal on or before 5 April 2002. The bonus year is not available on the disposal of a business asset after 6 April 2000.
Apportionment for taper relief
You may need to apportion the chargeable gain into two gains if an asset has been both a business asset and a non-business asset. In some cases where apportionment is needed, we have done the sums for you.
At what period do I have to look?
For apportionment, you should look at the whole of the relevant period of ownership (RPO). The RPO ends with the date of disposal. It starts with whichever is the latest of:
- the date of acquisition of the asset
- 6 April 1998
- ten years before the date of disposal.
Example
You bought an asset on 6 May 2003. You sell it on 31 December 2017. The RPO runs from the latest of
- the date of acquisition of the asset: 6 May 2003
- 6 April 1998
- ten years before the date of disposal: 31 December 2007.
In this case the RPO runs from 31 December 2007 to 31 December 2017 as the ten
year rule applies.
The date of acquisition will be given by the normal rules. For example, if you are disposing of shares, the share identification rules apply see article 3 Working out the chargeable gain.
Is the relevant period of ownership the same as the qualifying holding period?
The RPO and the qualifying holding period may cover the same period and may be the same length, but they do not have to be.
For example, you may have a bonus year in the qualifying holding period of a non-business asset. You should ignore any bonus year when you are working with the RPO.
For assets disposed of after 6 April 2008 the qualifying holding period may be longer than the RPO because the RPO is never longer than ten years.
When do I have to do an apportionment?
If during the RPO the asset was always a business asset, you not need to do an apportionment. You treat the asset as though it had always been a business asset. You ignore any periods before the start of the RPO even if it had then been a
non-business asset.
Similarly, if during the RPO the asset was always a non-business asset, you treat it as though it had always been a non-business asset. You should ignore any period before the start of the RPO, even if it had been a business asset before the RPO began.
Example
You bought an asset on 5 June 2004. You sold it on 20 August 2023.
It was a business asset from 5 June 2004 to 5 June 2008. It was a non-business asset thereafter to the date of disposal.
The RPO runs from 20 August 2013 to 20 August 2023.
Because it was a non-business asset throughout the RPO, you treat the asset as though it had always been a non-business asset. You ignore the time when it was a business asset before the start of the RPO.
However, if, during the RPO, the asset was sometimes a business asset and sometimes a non-business asset you will have to apportion the gain.
Example
You bought an asset on 15 July 2004. You sold it on 6 December 2018.
It was a business asset from 15 July 2004 to 5 June 2012. It was a non-business asset thereafter to the date of disposal.
The RPO runs from 6 December 2008 to 6 December 2018.
During the RPO the asset was sometimes a business asset and sometimes a non-business asset. So you will need to do an apportionment.
What does apportionment do?
Apportionment divides the total chargeable gain on the asset into a gain on a business asset and a gain on a non-business asset. The apportionment reflects the proportions of the RPO that the asset was a business asset and a non-business asset. You ignore the time before the RPO began.
You then work out taper relief as though you had held two assets a business asset and a non-business asset. The qualifying holding period will normally be the same for both assets.
Example
In this example, the qualifying holding period is the same length as the RPO. The asset was a business asset for one third of the RPO and a non-business asset for two thirds of the RPO.
You use those proportions to apportion the overall gain.
You will then be treated as though you had held a business asset and a non-business asset having the same qualifying holding period.
The gain on the business asset will be one third of the overall gain and the gain on the non-business asset will be two thirds of the overall gain.
The chart below displays the previous example as a diagram.
What about losses?
You should work through the apportionment before deducting losses.
You then deduct any losses and apply taper relief to each apportioned gain as though each apportioned gain was on a separate asset that you had owned for as long as you had owned the actual asset (see article 8).
Cant I just look up the number?
Sometimes. In the passage after the worked examples we show you how to look up the number for the apportioned taper rates for some assets that changed into business assets from 6 April 2000.
Three worked examples:
The next three examples show you how to apportion a gain. In the first two the asset has sometimes been a business asset and sometimes a non-business asset. In the last an asset has been both at the same time.
Example
You bought some shares on 17 February 1996 and sold them on 23 October 2003.
They were shares in the listed trading company where you worked throughout the time you owned the shares. You always had less than 5% of the voting rights. These shares were originally non-business assets and became business assets from 6 April 2000 as a result of changes in the Finance Act 2000.
You made a chargeable gain of £20,270.
Step 1: What is the relevant period of ownership?
The relevant period of ownership is the period from 6 April 1998 to 23 October 2003.
Step 2: Were the shares always business assets or always non-business assets during the relevant period of ownership?
The shares were a non-business asset from 6 April 1998 up to 5 April 2000 and a business asset from 6 April 2000 to the date of disposal.
So they were not always a business asset or always a non-business asset during the RPO.
Step 3: Do I have to do an apportionment?
Yes. During the RPO, the shares were sometimes a business asset and sometimes a non-business asset.
Step 4: Apportion the time in the relevant period of ownership
In the five years, six months and 17 days (2,027 days) of the relevant period of ownership there are
- two years as a non-business asset (731 days); and
- three years, six months and 17 days (1,296 days) as a business asset.
Expressed in days, the proportions are:
- 731/2,027 of the time in the relevant period of ownership was time as a
non-business asset, and
- 1,296/2,027 of the time was time as a business asset.
Step 5: Apportion the gain
Now divide the chargeable gain according to the proportion of the relevant period of ownership that the asset has been a business/non-business asset.
Your chargeable gain is £20,270. Then
the chargeable gain on a non-business asset is
(731) x £20,270 = £7,310
(2,027)
the chargeable gain on a business asset is
(1,296) x £20,270 = £12,960
(2,027)
Step 6: Work out the qualifying holding period
You work out the qualifying holding period for each apportioned gain as though you had held it for as long as you had held the actual shares.
There are five whole years in the qualifying holding period from 6 April 1998 to 23 October 2003. Because the asset had been acquired before 17 March 1998, the non-business asset also qualifies for the bonus year.
Step 7: Apply taper relief separately to each gain
Then
- the £7,310 non-business asset gain obtains six years non-business assets taper relief (with the bonus year). So 80% of the gain is the tapered chargeable gain, and
- the £12,960 business asset gain obtains five years business asset taper relief (without any bonus year). So 25% of the gain is the tapered chargeable gain.
The chargeable gains are 80% of £7,310 = £5,848
and 25% of £12,960 = £3,240
Example
You acquired some shares on 1 December 2000. You disposed of them on 1 May 2015.
They were shares in a listed trading company. You used to be an employee of the company, from 1992 to 1 May 2012, when you retired. You never had 5% or more of the voting rights. So they were a business asset from the date you acquired them until your last day at work, and a non-business asset thereafter.
You made a gain of £75,000.
The RPO runs from 1 May 2005 to 1 May 2015. The date of your retirement when the shares switched to being non-business assets was during the RPO. So the shares were both business assets and non-business assets during the RPO. So you need to apportion the gain.
In the ten years of the RPO, the shares were business assets for seven years and non-business assets for three years.
So your gain needs to be apportioned
- the chargeable gain on a business asset is: (7/10) x £75,000 = £52,500
- the chargeable gain on a non-business asset is (3/10) x £75,000 = £22,500
The qualifying holding period runs from 1 December 2000 to 1 May 2015. So there are 14 whole years in it.
Then
- the £52,500 business asset gain obtains 14 years business assets taper relief. So 25% of the gain is the tapered chargeable gain, and
- the £22,500 non-business asset gain obtains 14 years non-business asset taper relief. So 60% of the gain is the tapered chargeable gain.
The chargeable gains are
25% of £52,500 = £13,125
and 60% of £22,500 = £13,500
Example
On 1 January 2000 you bought a building. You sold the building on 1 January 2006.
Throughout the time that you owned it, you used the ground floor shop for your trade and you rented out the first floor flat to students who lived there.
When you sold the building, the gain was £60,000. Based on the values of the parts of the property, one third of the gain is treated as arising from the shop, and two thirds from the flat. So: one third of the gain (£20,000) is treated as a gain on a
business asset and two thirds (£40,000) as a gain on a non-business asset.
There are six whole years in the qualifying holding period. So the chargeable gains are
25% of £20,000 = £ 5,000
and 80% of £40,000 = £32,000
How precisely should I work out the apportionment?
You should normally work out the apportionment based on the number of days in the relevant period of ownership that the asset was a business asset and the number of days that it was a non-business asset.
Apportionment where assets become business assets from 6 April 2000
Assets may change their business/non-business status for many reasons. A number of assets changed their status from 6 April 2000 as a result of changes in the rules that were implemented in the Finance Acts 2000 and 2001. These changes mostly
affected the definition of a qualifying company, see Section 7.
In order to simplify the calculation, you may use the table on page 87 when completing tax returns for assets that you:
- owned before 17 March 1998, and
- that were wholly non-business assets up to 5 April 2000, and
- that were wholly business assets from 6 April 2000 up to the date of disposal.
You should apply the percentage in the table to the total chargeable gain. Using the table saves you apportioning the gain into a gain on a business asset and a gain on a non-business asset and making separate taper calculations. There is an example of how to use the table after the notes to the table.
You should not use the table if you wish to, or are required to, offset a loss against one or both of the apportioned chargeable gains on the asset.
Notes on the table
(1) There are two columns for disposals in April. You should choose which to use depending on whether you disposed of the asset on 1-5 April (just before completing another year in the qualifying holding period) or on 6-30 April (just after completing another year).
(2) We have worked out the figures in this table using a disposal date of the 15th of every month except April. For April, we used disposals on the 3rd and the 18th. On average, these mid-period disposal dates work out fairly, but
- if you disposed of your asset on a day of the month before the assumed date you will obtain a slight advantage from using the figures in the table
- if you disposed of your asset on a day of the month after the assumed date you will experience a slight disadvantage, though it will be simpler to use the table than to work through the apportionment. The differences are bigger in the earlier years.
-
In addition, the figures have been rounded to one decimal point.
If your gain is large, or if you wish to obtain the exact taper figure, then you may work out the apportionment precisely using the exact number of days rather than relying on the figures in the table. You can see whether it is worth calculating the figures yourself by looking at the next example.
(3) Taper relief contains a similar table giving apportioned taper percentages for disposals in the year of assessment for assets acquired between 17 March 1998 and 5 April 2000.
(4) Do not use the table if you wish to offset losses against these chargeable gains. If you have losses to offset, you should consider whether you will wish to offset them against one or both of the apportioned gains. For example, if one of the apportioned chargeable gains is the chargeable gain with the least taper relief of all your chargeable gains, then you should offset your losses against it (see What if my asset had been partly a business asset and partly a non-business asset? ). You need to have worked out the apportionment of your chargeable gain into separate gains on business and non-business assets in order to do that.
(5) You should not use the table if certain restrictions apply to you. Certain restrictions apply when close companies (broadly, a company controlled by five or fewer participators) change their activities, when value shifts out of shares in a close company, or you take steps to freeze the value of assets.
The example below shows you how to use the table.
Example
You bought some shares in an unlisted trading company on 17 May 1996. You had 1% of the voting rights. You disposed of the shares on 15 July 2006. From 6 April 1998 to 5 April 2000 the shares were a non-business asset. From 6 April 2000, as a result of the re-definition in the Finance Act 2000, the shares became a business asset. They remained a business asset up to the date of disposal. You had no loss to offset against the gain.
The chargeable gain on disposal was £100,000. Using the taper percentage from the table above for the month of disposal, the tapered chargeable gain is 34.7% of £100,000: that is, £34,700.
Further Information
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