CG17895 - Taper relief: chargeable gains are tapered
TCGA92/S2A, TCGA92/SCHA1
The main legislative provisions on taper relief are contained in
s2A and Sch A1 TCGA 1992.
Chargeable gains accruing to INDIVIDUALS, TRUSTEES AND
PERSONAL REPRESENTATIVES on or after 6 April 1998 are, apart from a
few limited exceptions, subject to taper relief. Although this
relief is designed to replace the indexation allowance, indexation
to April 1998 (`frozen indexation') will be available where the
asset disposed of was held at 5 April 1998. Therefore some
disposals will qualify for both frozen indexation allowance and
taper relief.
Neither taper relief nor the freezing of the indexation
allowance is applicable to chargeable gains accruing to COMPANIES.
The indexation allowance on a company's gains accruing on or after
6 April 1998 will continue to be computed by reference to the
actual date of the asset disposal and no taper relief will be
given.
Where a gain accruing to a company that is not resident in
the UK is assessable on a UK resident under TCGA92/S13 that gain is
to be computed as if the non-resident company were a UK resident
company within the charge to Corporation Tax. Indexation allowance
is given without freezing but taper relief is not available to the
person to whom the gain is attributed.
Taper relief reduces a chargeable gain according to the
number of whole years, see CG17900, (up to a maximum of ten) that
an asset has been held. For this purpose a year is any continuous
period of twelve months. The greater the length of the `qualifying
holding period', see CG17896 and 17900+, the smaller the percentage
of the gain which is chargeable to tax. There are two different
percentage tables, one for business assets and one for non-business
assets, see CG17904. The reductions for business assets are more
generous than those for non-business assets. It is important to
recognise, however, that in both instances a proportion of the gain
will not be covered by taper relief no matter how long the asset
has been held.
Although taper relief has been described as a replacement for
the indexation allowance, its computational treatment is different.
Whilst indexation is deducted in ESTABLISHING the amount of a gain,
taper relief is given AFTER the chargeable gains of the year have
been established. WHERE A chargeable gain accrues on a disposal
which attracts both the frozen indexation and taper relief:
- indexation is allowed, first, as a deduction in arriving at the amount of the gain;
- then deduct any relief that treats a gain as not accruing in the year. This gives the chargeable gain(s) of the year ;
- any allowable losses are deducted from the chargeable gains, see CG17975+;
- then taper relief is applied to the net amount of chargeable gains.
The Special Commissioner’s decision in Daniels v HMRC (SpC
489/05) confirmed that taper relief is only applied to chargeable
gains after deferral reliefs are deducted.
Allowable losses are not tapered. This is because they are
set off against untapered chargeable gains.
