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1. This clause provides for the period over which taper relief reduces the gains of business assets to be decreased from ten years to four years. The clause also removes for business assets the additional year which was added into qualifying holding periods for assets that were acquired before 17 March 1998. The changes take effect for disposals on or after 6 April 2000.

2. The reduction in the length of the taper reflects changing entrepreneurial investment patterns and will encourage entrepreneurs to invest successively in businesses and more general investment by individuals in business assets, particularly in smaller high-growth companies.

 

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DETAILS OF THE CLAUSE

 

3. Subsection (1) provides that Section 2A of the Taxation of Chargeable Gains Act 1992 (TCGA) should be amended.

4. Subsection (2) substitutes revised figures for the business assets taper. The table sets out the percentage of the gain that is chargeable to Capital Gains Tax (CGT) according to the number of whole years in the qualifying holding period.

5. The new business asset taper rates are set out in the table below:

Number of whole years in qualifying holding period	Percentage of Gain Chargeable
< 1	100
1	87.5
2	75
3	50
4 or more	25

 

6. Subsection (3) amends subsections 2A(8) and (9) of TCGA. These subsections determine the qualifying holding period for taper relief.

7. The new subsection 2A(8)(a) provides that for a business asset the qualifying holding period should be the period that the asset was held after 5 April 1998 up to the date of disposal. So the only change as regards the qualifying holding period is that there will no longer be a bonus year for business assets acquired before 17 March 1998.

8. The remaining provisions — including the reference to certain anti-avoidance provisions in the schedule - are unchanged in effect from the existing legislation.

9. Subsection (4) provides that the clause should apply to disposals made on or after 6 April 2000.

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BACKGROUND NOTE

CGT taper relief was introduced in the Finance Act 1998.

10. The relief progressively reduces the amount of a gain which is charged to CGT on the disposal of an asset, the longer that asset is held after 5 April 1998. Taper relief applies to the capital gains of individuals, trusts and the personal representatives of deceased persons, but not to the chargeable gains of companies.

11. Different taper rates apply to business assets and non-business assets. An asset used for the purposes of a trade is a business asset, as are certain shareholdings in trading companies. Clause 66 CGT: Taper Relief: Assets Qualifying as Business Assets broadens the range of shareholdings which qualify as business assets.

12. The existing and new business asset taper rates are set out in the table below:

Number of whole years in qualifying holding period	Percentage of Gain Chargeable
	Existing taper	New taper
< 1	100	100
1	92.5	87.5
2	85	75
3	77.5	50
4	70	25
5	62.5	25
6	55	25
7	47.5	25
8	40	25
9	32.5	25
10 or more	25	25

 

13. The ending of the bonus year for business assets acquired before 17 March 1998 has been reflected in the new more generous taper. All CGT payers with such assets where two or more years of asset ownership since 6 April 1998 count towards the qualifying holding period are better off under the new arrangements even without the bonus year.

14. The table below compares the existing and new taper relief on the sale of a business asset that had been acquired before 17 March 1998, that is disposed of on or after 6 April 2000, and where the period of ownership since 6 April 1998 counts towards the qualifying holding period. In all these cases, the new taper is more generous:

Year of Disposal	Existing Taper		New Taper
	Whole Years in Qualifying Holding Period (includes bonus year)	%age of gain that is chargeable	Whole Years in Qualifying Holding Period (no bonus year)	%age of gain that is chargeable
2000-01	3	77.5	2	75
2001-02	4	70	3	50
2002-03	5	62.5	4	25
2003-04	6	55	5	25
2004-05	7	47.5	6	25
2005-06	8	40	7	25
2006-07	9	32.5	8	25
2007-08 and on	10	25	9	25

 

15. The changes are to the business assets taper only. There is no change to the non-business assets taper. Non-business assets will continue to attract the "bonus year" where appropriate.

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