CG67628 - Partnerships: The 1998 Changes: Taper relief: Indexation and taper relief involved

This example looks at the position where the series of transactions start before 31 March 1982 (both re-basing and indexation apply) and carry through to after 6 April 1998 (taper relief applies), see CG17904.

• Partner X acquires a 50% fractional share in a partnership asset on 6 April 1981 for £3,000 which has a market value of £5,000 at 31 March 1982
• X holds this until 6 April 2000 and then transfers it on a no gain/no loss basis to partner Z
• Z then disposes of it outside the partnership on 6 April 2005 for £20,000
• Partner Y acquires the other 50% fractional share on 6 April 1981 for £3,000 with a 31 March 1982 market value of £5,000
• Y holds on to this until 6 April 2005 and then disposes of it outside the partnership on 6 April 2005 for £20,000

Paragraph 4 of Statement of Practice D12 says that X's disposal is for a consideration equal to X's CGT cost but as this is a pre-31 March 1982 asset, SP1/89 treats the disposal as a statutory no gain/no loss disposal. Indexation allowance does not come into this so X's 2000/2001 computation is

Neither indexation allowance or taper relief are due by reference to any period for which X actually held the asset.

As X's disposal is treated as a statutory no gain/no loss transfer, Z is treated for indexation purposes as having held the asset at 31 March 1982 at a deemed cost of £5,000. The 2005/2006 computation is

Indexation allowance is due for 16 years (1982-1998) which is the period for which Z is deemed to have held the asset and taper relief is based on a holding period of 5 years (2000- 2005) which is the period for which Z actually held the asset.

Y's 2005/2006 computation is

Indexation allowance is due for 16 years (1982-1998) which is part of the period for which Y held the asset and taper relief is based on a holding period of 7 years (1998-2005) which is the remaining part of the period for which Y has held the asset.