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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 self-assessed, 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 or unincorporated trade from 6/4/04.
- 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 are chargeable for disposals in 2005/06 onwards are:
| 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 |
80 |
| 7 |
25 |
75 |
| 8 |
25 |
70 |
Taper relief is calculated after applying all other reliefs (eg losses), apart from annual exemption.
The effect of taper can be 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.
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 shares (see Investment Reliefs).
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