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If the asset was owned before April 1998, the cost is adjusted for the effect of inflation up to that month before working out
the gain. For assets bought since, the gain is generally the excess of proceeds over cost.
CGT is taxed, reported and paid in conjunction with income tax, and the details are given on
Personal Taxation.
Taper relief
For disposals since April 1998, gains are reduced according to the length of time for which the asset has been owned. Assets owned
before April 1998 only count the complete years of ownership after 5 April 1998, plus one year for a 'non-business asset'
which was owned on 17 March 1998.
Business assets (BA) have a more generous rate of taper relief:
- any shares in an employer company, which has to be a trading company if the employee owns over 10%
- any shares in unquoted trading companies
- 5% holdings in quoted trading companies
- buildings let by a landlord to an unquoted trading company
- assets of an unincorporated business owned by a partner or sole trader.
Non-business assets (NBA) include most non-employee quoted shareholdings and residential investment properties.
The percentages of a gain which is chargeable for disposals from 2002/03 onwards are:
| Number of years owned for taper purposes |
Business Assets % |
Non-business Assets % |
| less than 1 |
100 |
100 |
| 1 |
50 |
100 |
| 2 |
25 |
100 |
| 3 |
25 |
95 |
| 4 |
25 |
90 |
| 5 |
25 |
85 |
| 6 |
25 |
85 |
The rate on BA was less generous before 6 April 2002.
Taper relief is calculated after applying all other reliefs (eg losses), apart from annual exemption. The effect of reducing
the gain is sometimes expressed as a reduction in the rate of tax - the effective rate for a 40% taxpayer on a BA owned for
two years is only 10%, because the gain is reduced to 25% of the full amount. The rate on NBA falls to 38% with 5%
taper, 36% with 10% taper, etc.
Other major CGT reliefs
A number of types of asset are exempt from CGT, including chattels (tangible movable property) which are
bought and sold for less than £6,000; cars; and the taxpayer's only or
main residence. A taxpayer with more than one residence can choose which is to be exempt, but it is not possible to apply the
exemption to an investment property which is rented out.
Retirement relief was available up to 5 April 2003 for disposals of the taxpayer's own business when over
50, but it has now been phased out.
Gifts to charity are not charged to CGT, and gifts of quoted shares and land also enjoy an income tax
relief (see Personal Taxation).
Deferral of gains is allowed on some types of reinvestment, such as subscription for new EIS or VCT
shares (see Investment Reliefs).
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