CG17963 - Taper relief: assets qualifying as business assets for only part of the relevant period of ownership

Shares or securities (or an interest in shares or securities), see CG17930, in a company are business assets at any time if at that time they are shares in a qualifying company. Where the shares have only been business assets for part of the relevant period of ownership, see CG17925, of the person making the disposal only part of any chargeable gain will be eligible for business asset taper relief. A common situation when this might be relevant is where shares become business assets on 6 April 2000 following the changes in FA 2000 and 2001.

The same issues will also arise on assets other than shares or securities (or interests in shares or securities). For example, following the changes in FA 2004, a wider range of assets become business assets for periods from 6 April 2004.

Other common situations where apportionment is required are where a company ceases to be a trading company and goes into liquidation or if a company moves in and out of 'trading company' status. This may not be necessary where the taper provisions in FA 2001 apply to relevant employees, see CG17930. In the case where a company goes into liquidation it is unlikely to be trading during the period of the liquidation. If so, it may be necessary to apportion the gain on the shares.

Example - 6 April 2000

Mrs A acquires shares in a listed trading company on 1 January 1997. She is a part-time employee of the company. No further acquisitions of shares are made. The shares were not business assets before 6 April 2000. The shares became business assets on 6 April 2000. The shares are disposed of on 6 April 2001. The chargeable gain on the shares before taper relief is £30,000.

There are three whole years in the qualifying holding period between 6 April 1998 and 6 April 2001, see CG17897. For 2 of the three years in the relevant period of ownership, see CG17896, the shares were not business assets. However, they were business assets for one year.

The gain relating to the period when the shares were not a business asset is therefore 2/3 x £30000 = £20,000. There are three whole years of taper but this disposal also qualifies for the bonus year, see CG17901, so the total number of whole years is 4 and 90% of the gain, or £18,000, is chargeable.

The gain relating to the period when the shares were a business asset is therefore £10,000. Again there are three whole years of taper but the bonus year is not added to this, see CG17901. So 50%, or £5,000, is chargeable.

The total chargeable gain on the disposal of the shares is therefore £18,000 + £5,000 = £23,000.

Example - Ceasing to be a trading company

Mr T has 50% of the ordinary share capital of a trading company in which he is an employee. The shares were acquired on 1 October 2000. On 1 December 2002 the company ceases to trade and goes into liquidation. The liquidation is completed and on 1 June 2003 Mr T receives a distribution from the liquidator being a disposal of all Mr T's shares in the company.

The shares were business assets from 1 October 2000. The shares ceased being business assets on 1 December 2002. The shares are disposed of on 1 June 2003. The chargeable gain on the shares before taper relief is £64,000.

There are two whole years in the qualifying holding period between 1 October 2000 and 1 June 2003, see CG17897. For 26 of the 32 months in the relevant period of ownership, see CG17896, the shares were business assets. However, they were non-business assets for 6 months.

The gain relating to the period when the shares were a business asset is therefore 26/32 x £64000 = £52,000. There are two whole years of taper so 25% of the gain, or £13,000, is chargeable.

The gain relating to the period when the shares were a non-business asset is therefore £12,000. Again there are two whole years in the qualifying holding period 100%, or £12,000, is chargeable.

The total chargeable gain on the disposal of the shares is therefore £13,000 + £12,000 = £25,000.

Here, the loss of business assets status on 1 December 2002 is not due to the company going into liquidation. It is because the company ceased to be a trading company on that date.

Example - assets other than shares

An individual A owns a business park divided into separate units and lets out five of the units. All lettings commenced after 6th April 1998 but before 6th April 2004. Unit 1 is let to individual B who uses it for her trade. Unit 2 is let to a partnership C whose membership consists of companies, one of which is an unlisted trading company. The partnership uses the unit for the purposes of its trade. Unit 3 is let to a listed trading company which uses it for the purposes of its trade: individual A is not an employee of this company and he is not able to exercise more than 5% of the voting rights in the company. Unit 4 is let to partnership D whose members are all individuals (one of whom is individual A), but the premises are not used for the purposes of a trade. Unit 5 is let to an unlisted trading company which uses it for the purposes of its trade. Individual A has never been an employee of this company and has never owned any of its shares or securities.

For periods of ownership before 6th April 2004 while the units are let as described the business assets status of those units for taper relief purposes in relation to individual A, see CG17937, will be as follows-

• Unit 1 will not qualify as a business asset because, although it is being used for the purposes of a trade carried on by an individual, that individual is not individual A;
• Unit 2 will not qualify as a business asset as although the partnership uses the asset for the purposes of its trade, individual A is not a member of the partnership;
• Unit 3 will not qualify as a business asset as the listed trading company is not a qualifying company by reference to individual A;
• Unit 4 will not qualify as a business asset because, although individual A is a member of the partnership, the partnership does not use the unit for the purposes of a trade; and
• Unit 5 will not qualify as a business asset for the period of letting before 6th April 2000, as prior to this date, the unlisted trading company was not a qualifying company by reference to individual A. The company became such a qualifying company from that date. From that date, Unit 5 will qualify as a business asset as it is being used by a company which is a qualifying company by reference to individual A for the purposes of its trade.

For periods of ownership from 6th April 2004 while the units are let as described the business assets status of those units for taper relief purposes in relation to individual A, see CG17937,, will be as follows-

• Unit 1 will qualify as a business asset as it is being used by an individual for the purposes of her trade even though the individual A is not the trader;
• Unit 2 will qualify as a business asset as at least one member of the partnership (the unlisted trading company) is a qualifying company by reference to individual A and the partnership is using the premises for the purposes of its trade;
• Unit 3 will not qualify as a business asset as the listed trading company is not a qualifying company by reference to individual A;
• Unit 4 will not qualify as a business asset because the partnership does not use the unit for the purposes of a trade; and
• Unit 5 will qualify as a business asset as it is being used by a company which is a qualifying company by reference to individual A for the purposes of its trade.