Capital Gains Tax Relief

Capital Gains Tax Relief

This section details the range of allowances and reliefs that are available in addition to the main exemptions and main tax free yearly allowances when dealing with disposals chargeable to capital gains tax (CGT).

Some of the reliefs have now been withdrawn, but we have retained the pages for historical reference:

• Entrepreneurs Relief
• Indexation Allowance
• Taper Relief
• Rollover Relief
• Holdover Relief
• Reinvestment Relief

For more help and advice on capital gains relief.  Contact us.

1.  Entrepreneurs Relief - Capital Gains Tax CGT Relief Business Assets - 10%

Indexation allowance and taper relief no longer apply to gains on disposals of assets by individuals after 6 April 2008, in simple terms there is no longer any 'inflation' type adjustment on our gains, just a flat tax rate, similar to many European nations.

All taxable gains on assets, including business assets, after deduction of your personal allowance are now taxed at a flat rate of 18%.   This was received in uproar by business entrepreneurs who are trying to build both business and wealth and then found that they were having tax bills nearly doubled when they were creating employment and wealth for all.

Entrepreneurs Relief - with effect 6 April 2008

Entrepreneurs Relief Rate for Business Assets is a capital gains tax CGT concession rate charge of 10% of the chargeable gain on the sale of trading businesses and shares.

Each individual in the UK has a cumulative lifetime allowance for gains on business assets of £1m for this entrepreneurs relief concession rate.

2.  Taper Relief: Capital Gains Tax CGT: 6 April 1998 to 5 April 2008

Taper Relief Changes:  Please note that with effect from 6 April 2008 taper relief for Individuals, Trusts and Business Assets was withdrawn.  A new flat capital gains tax rate applies to all gains and a new entrepreneurs relief introduced for business assets.

Taper Relief started on 6 April 1998 and was withdrawn on 5 April 2008

If you disposed of an asset and made a gain, taper relief used to reduce the amount of any chargeable gain.

Taper Relief worked as follows:

The amount of reduction depended on how long the asset had been held after April 1998.

Individuals and Trusts - Years Held (after 1998) and percentage of gain chargeable:

• 0 Years owned and then disposed of. Percentage of gain taxable is 100%
• 1 Year owned and then disposed of.  Percentage of gain taxable is 100%
• 2 Years owned and then disposed of.  Percentage of gain taxable is 100%
• 3 Years owned and then disposed of.  Percentage of gain taxable is 95%
• 4 Years owned and then disposed of.  Percentage of gain taxable is 90%
• 5 Years owned and then disposed of.  Percentage of gain taxable is 85%
• 6 Years owned and then disposed of.  Percentage of gain taxable is 80%
• 7 Years owned and then disposed of.  Percentage of gain taxable is 75%
• 8 Years owned and then disposed of.  Percentage of gain taxable is 70%
• 9 Years owned and then disposed of.  Percentage of gain taxable is 65%
• 10 Years owned and then disposed of.  Percentage of gain taxable is 60%

Please note that if you owned the asset before 5 April 1998, you are entitled to an additional years allowance, although this benefit becomes irrelevant in 2008 (Businesses lost this allowance in 2000).

Businesses also used to benefit from taper relief on gains.

Businesses - Years Held (after 1998) and Percentage of Gain Chargeable

• 0 Years owned and then disposed of.  Percentage of gain taxable is 100%
• 1 Year owned and then disposed of.  Percentage of gain taxable is 50%
• 2 Years owned and then disposed of.  Percentage of gain taxable is 25%
• 3 Years owned and then disposed of.  Percentage of gain taxable is 25%
• 4 Years owned and then disposed of.  Percentage of gain taxable is 25%
• 5 Years owned and then disposed of.  Percentage of gain taxable is 25%
• 6 Years owned and then disposed of.  Percentage of gain taxable is 25%
• 7 Years owned and then disposed of.  Percentage of gain taxable is 25%
• 8 Years owned and then disposed of.  Percentage of gain taxable is 25%
• 9 Years owned and then disposed of.  Percentage of gain taxable is 25%
• 10 Years owned and then disposed of.  Percentage of gain taxable is 25%

3.  Indexation Allowance: Capital Gains Tax CGT Advice

For Assets acquired between 31st March 1982 & 5 April 1988.  

It is possible for any chargeable gains to be reduced by taking account of inflation and using the Indexation Allowance.

This allowance works by increasing the cost of the asset with the Retail Prices Index over the period the asset was held.  

By using the Indexation Allowance, you are not allowed to turn the gain into a loss or increase a loss.

How is the allowance worked out?

Inflation at 5 April 1998 less Inflation RPI at date of acquisition divided by Inflation at date of acquisition.

After 1998

For assets acquired after 5th April 1998 there is no Indexation Allowance available when the asset is disposed of.

4.  Rollover Relief

This relief is available for certain assets used for trading, such as buildings, land, plant and machinery.

To get the relief, the full proceeds (not just the gain) need to be reinvested into new qualifying assets.

The reinvestment must take place during the period beginning one year before and ending three years after the date of disposal.

5. Holdover Relief

If you transfer or gift assets to another, this relief allows capital gains that arise on those gifts to be deferred, normally until the gifted asset is finally disposed of.

This only applied to certain assets:

• Transfers chargeable to inheritance tax such as discretionary trusts
• Disposals of trading assets
• Gifts to a trust for disabled beneficiaries

It does not apply to:

• Transfers of shares to a company
• Moving assets to a trust in which the person who set up the trust has an interest.

6.  Reinvestment Relief

Capital Gains Tax CGT may be deferred by reinvestment of the chargeable gain into certain eligible qualifying shares such as Enterprise Investment Schemes.  

The reinvestment cannot be outside one year before the date of disposal or more than three years after the date of disposal.  

It is possible for individuals and trusts that have been set up for individuals to claim the relief.  

Any gain will continue to be deferred as long as qualifying shares are held in accordance with stringent provisions.