CG17915 - Taper relief: anti-avoidance rules

Taper relief encourages longer term holding of assets by reducing the proportion of a gain that is chargeable the longer an asset is held up to a maximum of 10 years. There are 4 anti-avoidance rules, each of which is designed to prevent any advantage being obtained from artificial transactions that could otherwise increase the qualifying holding period. The 4 types of transaction at which the rules are aimed are:

• FREEZING - retaining ownership of an asset to increase the qualifying holding period while removing any economic exposure from that ownership, see CG17916;
• ENVELOPING - transferring a short held asset to a company whose shares have been held for a longer time in order to take advantage of the longer qualifying holding period of the shares, see CG17919;
• INACTIVITY - holding shares in a company when it is inactive so that when the company becomes active the qualifying holding period will include the inactive period;
• VALUE SHIFTING - shifting value from shares held for a shorter time into shares held for a longer time in order to take advantage of their longer qualifying holding period, see CG17922.

The legislation that prevents each of these avoidance devices operates where a particular set of factual circumstances exists. There is no purpose test. Therefore it does not matter whether the taxpayer had any intention to exploit the taper rules.

If you come across any case where there appears to be an attempt to manipulate the qualifying holding period to obtain greater taper relief than would otherwise be due, in a way that does not appear to be caught by any of the 4 rules, your papers should be passed to Capital Gains Technical Group together with a brief report.

• EFFECT OF THE ANTI-AVOIDANCE RULES

The 4 rules apply to create periods that do not count for the purpose of taper relief. Those periods are then:

• excluded by TCGA92/SCHA1/PARA2(4)(a) from the qualifying holding period;
• excluded by paragraph 2(4)(b)(i) in computing for the purpose of paragraph 2(2) the last 10 years ending with the time of the disposal that is taken into account in determining the relevant period of ownership, see CG17925+; and
• excluded by paragraph 2(4)(b)(ii) from the relevant period of ownership.

Where any period that does not count is derived from paragraph 11 or 12, TCGA92/S2A(8) prevents the bonus year, see CG17901, from being added to the qualifying holding period.

Example 3 at CG17928 shows the effect of the anti-avoidance rules in practice.