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Inland Revenue 1
9 November 1999
CAPITAL GAINS TAX:
INCENTIVES FOR ENTREPRENEURIAL INVESTMENT
The Chancellor today announced plans to make capital gains tax (CGT)
taper relief for business assets more generous. This relief creates
incentives for investment in assets which generate sustained growth,
with particular support for entrepreneurial investment. In particular,
the Government will:
- Shorten the business asset taper from 10 years to 5 years, subject
to detailed consultation; and
- Assess the case for widening the scope of CGT incentives towards
entrepreneurial investment by reducing substantially the percentage
thresholds for qualifying business asset shareholdings.
DETAILS
Subject to detailed consultation, the Government intends to introduce
a 5 year taper for business assets which reduces the equivalent CGT
rate for a higher rate taxpayer from 40 per cent for assets held for
less than 1 year, reducing in 6 per cent steps to 10 per cent for
assets held for more than 5 years.
A business asset includes substantial shareholdings in a trading
company. The Government will assess the case for substantial reductions
in the thresholds of 5 per cent and 25 per cent at which these shareholdings
qualify.
NOTES FOR EDITORS
- CGT taper relief was introduced in Finance Act 1998. The relief
reduces the amount of a capital gain which is charged to tax on
the disposal of an asset; the reduction increases 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 capital gains of companies.
- Different tapers apply to business assets and non-business assets.
A business asset is an asset used for the purposes of a trade and
a shareholding in a trading company (or the holding company of a
trading group) in which the shareholder can exercise voting rights
of at least 5 per cent (if the shareholder works full-time in the
company's business) or 25 per cent (otherwise).
- The present CGT taper relief reduces the taxable gain on a business
asset from 100 per cent if the asset has been held for less than
one year after 5 April 1998 to 25 per cent if held for more than
10 years - effectively the rate of tax for a higher rate taxpayer
is reduced from 40 per cent to 10 per cent.
- For a non-business asset, CGT taper relief reduces the taxable
gain from 100 per cent if the asset has been held for less than
3 years after 5 April 1998 to 60 per cent if held for more than
10 years - effectively a reduction in the CGT rate for a higher
rate taxpayer from 40 per cent to 24 per cent.
- Comments on the proposed changes are welcome and should be sent
to:
Richard J. Thomas
Capital and Savings Division
New Wing
Somerset House
Strand
London WC2R 1LB.
Media enquiries to:
Jane Ashton
Clare Merrills on 0171 438 6692/6706/7327
(Out of hours: 0860 359544)
Non-media enquiries to: 0171 438 4260/6425
(Office hours only)
Inland Revenue press releases are on the Internet:
www.inlandrevenue.gov.uk
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