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withdraws TCGA 1992/S2A and SchA1 so that taper relief is no longer
applicable to any disposals made on or after 6th April 2008.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Indexation was similarly withdrawn by FA 2008/Sch2 so for disposals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.
