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TaxationWeb by Kate Stephens ACA ATII

How can an individual's taper relief entitlement be improved? Kate Stephens, an Associate at Forbes Dawson, discusses the action now needed to counter periods of non-business use in the light of the changes to taper relief in the 2002 Budget.Although the Chancellor has made Capital Gains Tax taper relief on the disposal of business assets even more generous in the Budget on 17 April 2002, it should not be assumed that everyone will automatically qualify for the full maximum relief.

Further Acceleration of Business Asset Relief

The reduction of the period for which business assets need to be held before they are eligible for the maximum rate of taper relief from 4 to 2 years had already been announced last year and thus came as no surprise.

The Revenue Budget Note confirms that the two-year period will apply for assets held for more than 2 years from 5 April 2000 (i.e. for disposals made on or after 6 April 2002).

This retrospective change means that people who have owned business assets before 5 April 2000 will already be getting the maximum relief and paying an effective rate of Capital Gains Tax of 10% on disposals made in 2002/03.

Non-Business Assets

This acceleration of relief is of, course, a welcome change. No proposals, however, were announced in the Budget with respect to non-business asset relief, although the Government has said it is reviewing the current position.

The difference in treatment between business and non-business assets is now even more astonishing. It still takes 10 years to get the maximum rate of 40% relief for non-business assets. This gives rise to a substantial risk for people failing to satisfy the business asset rules.

Review Needed Now

There is one planning point in particular that, while not a new point arising from the Budget, has become more pressing with the acceleration of business asset relief.

This concerns individuals or Trustees who have a period over which the asset concerned did not satisfy the business asset rules. In particular we have many clients whose unquoted shareholdings did not qualify between 5 April 1998 and 5 April 2000.

Two examples are:

o Individuals who did not work full-time for the company in which they hold shares and held less than 25% of the voting rights, and
o Trustees of Discretionary Trusts who did not hold at least 25% of the voting rights of the company in which they hold shares.

On a disposal of shares, the taper relief available will be diluted because of the rules regarding apportionment.

Action

There are a number of ways that the taper relief ‘clock’ can be reset through arrangements using simple Trusts and this should be considered where disposals are not expected for the following 2 years.

We at Forbes Dawson are acting for a number of clients already who are in this position and would be pleased to advise further on the opportunities available.

For further information about this or other capital gains tax planning please contact Kate Stephens at Forbes Dawson on 0161-245-1095 or by email at kate@forbesdawson.co.uk.