CG17921 - Taper relief: anti-avoidance rules - periods of inactivity

TCGA92/SchA1/Para11A (Periods of share ownership not to count if company is not active) applies to disposals of shares or securities in a company on or after 17 April 2002 for any period when the company was close and inactive. Any such period will not count for the purposes of taper relief and will therefore not be taken into account when working out the qualifying holding period (see CG17900+) and the relevant period of ownership (see CG17925+). Further detailed guidance on TCGA92/SchA1/Para11A is at CG17921a to 17921j.

TCGA92/SchA1/Para11, see CG17919, does not apply to disposals of shares on or after 17 April 2002, even if there was a relevant change of activity involving a close company before that date.

TCGA92/SchA1/Para11A applies for disposals of shares in companies from 17 April 2002. It applies where, on or after 17 April 2002, there has been a disposal of shares in a company which was both 'close' and `inactive' at any time from 6 April 1998 to the date of disposal. Where TCGA92/SchA1/Para 11A applies the period during which the company was both close and inactive will not count for the purposes of taper relief. The TCGA92/SchA1/Para11A test should be applied before considering whether an asset is a business asset or not.

The examples below show how TCGA92/SchA1/Para11A works.

Example 1

Mary acquires shares in a company on 1 July 1998. These are disposed of on 1 September 2002. The company was both close and inactive from 1 July 1998 to 31 December 1998 (inclusive). On 1 January 1999 the company started to trade (i.e. it became `active'). It continued trading until 1 September 2002 and remained close in that period.

Mary's qualifying holding period for taper relief purposes will be the period from 1 January 1999 (rather than 1 July 1998) to 1 September 2002. There are three (rather than four) whole years in this period. This will also be Mary's relevant period of ownership. If the shares qualified as business assets throughout the relevant period of ownership full taper relief at the business rate will be due in computing the chargeable gain.

Example 2

John acquires shares in an active close company on 1 May 1999. The company is inactive from 1 August 2002 but becomes active again on 1 August 2004. John disposes of his shares on 1 December 2005. The company remained close throughout. John's qualifying holding period will be the combined period from 1 May 1999 to 31 July 2002 and 1 August 2004 to 1 December 2005, or 4 years and 7 months. This is also the relevant period of ownership of the shares. There are 4 whole years in the qualifying holding period. John will need to work out if the company was his qualifying company during the two parts of the relevant period of ownership in order to see if business assets taper is due. (The period 1 August 2002 to 31 July 2004 is a period that `does not count' for taper purposes. It is not therefore taken into account in working out either the qualifying holding period or the relevant period of ownership.)