CG17895 - Taper relief: chargeable gains are tapered: Taper relief does not apply to disposals before 6 April 1998 or after 6 April 2008

TCGA92/S2A, TCGA92/SCHA1 and FA2008/SCH2

The main legislative provisions on taper relief are contained in TCGA 1992/S2A and SchA1.

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. FA2008/Sch2 then withdraws TCGA 1992/S2A and SchA1 so that taper relief is no longer applicable to any disposals made on or after 6th April 2008. Entrepreneur’s Relief may however be due in respect of some business disposals from that date - see CG63950+.

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. Indexation was similarly withdrawn by FA 2008/Sch2 so for disposals made on or after 6th April 2008 neither frozen indexation nor taper relief will be due. It is possible however that some disposals made between 6th April 1998 and 5th April 2008 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.