VCM43660 - EIS: Taper relief for serial investments: business or non-business asset: example 2
Albert disposes of some shares in DEF Ltd to which deferral
relief is attributable at a gain of £140,000. He held the
shares from 1 August 1998 to 31 August 2003. A revived gain of
£50,000 accrues to him when the shares are disposed of. The
original gain in question, which had accrued on the disposal of an
oil painting on 5 January 1998, had been deferred under
TCGA92/SCH5B because qualifying expenditure on the DEF Ltd shares
was set against it. The DEF Ltd shares do not qualify as a business
asset for taper relief purposes at any time in the period Albert
held them.
He invests £170,000 in shares in GHI Ltd and obtains
deferral relief by setting £50,000 of the expenditure against
the revived gain and £120,000 of the expenditure against the
gain of £140,000. He pays tax for the year of assessment
2003-04 on £20,000, being the `unused' part of the chargeable
gain of £140,000. The qualifying holding period applicable for
the £20,000 gain comprises 5 whole years so 85% of the gain is
chargeable to CGT. The GHI Ltd shares are issued to him on 2
January 2006 and he disposes of them at a gain of £100,000 on
1 October 2012. The shares qualify as a business asset for taper
relief purposes throughout the period Albert held them. He pays tax
for 2012-13 on the £100,000 gain and on the earlier gains of
£50,000 and £120,000 which are revived when he disposes
of the GHI Ltd shares.
£100,000 Gain
This gain accrues on the disposal of a business asset. There
are six whole years in the qualifying holding period, so 55% of the
gain is chargeable to CGT.
£50,000 Gain
This gain is treated for taper relief purposes as accruing at
the time of the disposal of the oil painting in the 1997-98 tax
year. It does not, therefore, qualify for any taper relief.
£120,000 Gain
The qualifying holding period for taper relief purposes
begins on 1 August 1998 and ends on 1 October 2012. The period
between 31 August 2003 and 2 January 2006 does not count, see
VCM43200. The length of the qualifying
holding period is 14 years 61 days less 2 years 124 days so there
are 11 whole years. The relevant period of ownership (the period of
10 years ending with 1 October 2012 leaving out the period which
does not count) is 3,653 days long. It comprises 2,464 days for
which the asset is treated as a business asset and 1,189 days for
which it is treated as a non-business asset.
The revived gain of £120,000 is split into two gains for
taper purposes. A gain of £80,942 (£120,000 x 2464 /
3653) arises on the disposal of a business asset and a gain of
£39,058 (£120,000 x 1189 / 3653) arises on the disposal
of a non-business asset.
Therefore, 25% of the gain of £80,942 and 60% of the
gain of £39,058 are chargeable.
