Inland Revenue 17
17 March 1998
______________________________________________________________
CAPITAL GAINS TAX: PHASING OUT OF RETIREMENT RELIEF
The Budget includes proposals for the introduction of a taper
which will substantially reduce the capital gains tax charge
on the disposal of long-held business assets. In the light
of these proposals, the Chancellor has decided that it is no
longer appropriate to give a further tax exemption to a slice
of business gains. Retirement relief will therefore be
phased out from 6 April 1999 by a gradual reduction of the
relief thresholds. The relief will cease to be available
from 6 April 2003.
The phasing out of retirement relief is part of the
Chancellor's wider proposals for reform of capital gains tax
(CGT) designed to encourage long-term investment, promote
entrepreneurial activity and introduce a fairer tax system.
The eventual withdrawal of the relief will also simplify
capital gains tax significantly.
DETAILS
1. Retirement relief exempts from CGT the first 250,000
pounds, and half of the next 750,000 pounds, of gains from
the disposal of a business by an individual who is aged 50 or
over or who retires earlier due to ill health.
2. The Chancellor's proposals will phase out retirement
relief over the next few years. Many people in business will
have been expecting a measure of exemption from capital gains
tax on their retirement during that time. In due course they
can expect to benefit from the new taper relief for business
assets which the Chancellor has announced; but it will take
some time for the value of the new taper relief to build up.
Retirement relief will therefore not be fully withdrawn until
the tax year 2003-04, by which time the benefits from taper
relief will be substantially greater.
3. For the year 1998-99 the thresholds for retirement relief
will remain unchanged. From the year 1999-2000 onwards the
exemption and half-exemption limits will be reduced annually
as taper relief becomes more valuable. The maximum
retirement relief for each year in the transitional period
will be as follows -
Year 100 per cent relief on 50 per cent relief on
gains up to pounds: gains between pounds:
1998-99 250,000 250,001 - 1,000,000
1999-00 200,000 200,001 - 800,000
2000-01 150,000 150,001 - 600,000
2001-02 100,000 100,001 - 400,000
2002-03 50,000 50,001 - 200,000
4. The rules for computing retirement relief will remain
unchanged throughout the period of phasing out. The relief
will continue to be given against qualifying chargeable gains
computed after indexation allowance (available in respect of
periods up to April 1998) but before any taper relief. Taper
relief will be available on any gains which remain chargeable
after retirement relief has been allowed. Where qualifying
gains are not wholly covered by retirement relief, retirement
relief will be applied so as to provide the maximum possible
benefit from taper relief in respect of those gains that
remain chargeable.
NOTES FOR EDITORS
1. Retirement relief is given to individuals who are aged 50
or over (or who retire earlier on ill health grounds) against
capital gains on the disposal of
the whole or part of a business;
individual business assets (provided they are disposed of
within a period of the business having ceased);
shares in a personal trading company (i.e. a trading
company in which an individual who is a full-time
employee holds more than 5 per cent of the voting
rights).
2. Full relief is given if the necessary conditions have
been satisfied throughout a period of 10 years. If the
qualifying period is between one and ten years, the maximum
relief is reduced pro rata.
3. The yield from phasing out retirement relief is included
in the figures in press release Inland Revenue 16 which
summarises the main structural changes to CGT announced by
the Chancellor.
INLAND REVENUE PRESS OFFICE
Media enquiries to: 0171 438 6692/6706/7327
(Out of hours 0860 359544)
Non media enquiries to: 0171 438 6420/6425
(Office hours only)