View more on these topics

Capital Gains Tax

The Chancellor&#39s pre-Budget report flagged the likely improvements to taper relief for business assets and changes to this relief have indeed been proposed (see below).


This is increased from £7,100 in 1999/2000 to £7,200 in 2000/2001 for individuals and personal representatives, and (in most cases) from £3,550 to £3,600 for trustees.


It will be recalled that, in the last Budget, two rates of capital gains tax were introduced – 20% and 40%. The 20% rate applies where (and to the extent that) the capital gains (operating as the top slice of an individual&#39s taxable income) fall below the higher rate threshold.

As promised in the November pre-Budget report the 10% rate of income tax became applicable to savings income with effect from 6 April 1999. Corresponding changes have been made to capital gains tax from 6 April 2000 to keep it in line with the tax rates for savings.

For example, as a result of a long period of effective tax and financial planning John has taxable income (ie. after personal allowances and deductions) of £1,200. He then realises £37,800 of capital gains (after the annual CGT exemption).

John&#39s capital gains will be subject to tax as follows:-

£320 @ 10% (up to £1,520)

£26,880 @ 20% (up to £28,400)

£10,600 @ 40% (over £28,400)

Whilst particularly welcome in respect of income tax, it will be comparatively rare for an individual to have an intact (or partially intact) £1,500 10% tax band to set against capital gains in excess of the annual exemption.


With the introduction of taper relief in 1998, 1998/99 was the last year for which full retirement relief was available. The relief ends completely from 6 April 2003.


As indicated in the pre-Budget report the Chancellor has announced plans to dramatically improve tax relief for business owners. These include the following proposals:

 to shorten the business asset taper period from 10 years to 4 years

 to remove the bonus year of ownership for those who owned qualifying assets on 16 March 1998 which means that the ownership period to qualify for relief will start to run from 6 April 1998

 to reduce the number of voting shares that an individual needs to hold to qualify for the relief so that all shareholdings in unquoted trading companies, all shareholdings of employees in quoted trading companies and shareholdings held by outside investors in quoted trading companies above a 5% threshold will qualify as business assets. All employees, not just full-time employees, will benefit from these changes.

Unquoted companies for this purpose are defined as those which have no shares or securities listed on a recognised stock exchange. Shares traded on the AIM will be treated as unquoted.

The changes will apply to all disposals of qualifying assets after 5 April 2000 .

Currently, taper relief for business assets operates over a 10 year ownership period. This is summarised in the following table.

Taper Relief On Business Assets

Number of complete years after 5.4.98 for which asset held Percentage of gain chargeable Equivalent % tax rate for higher rate taxpayer




1 92.5 37

2 85 34

3 77.5 31

4 70 28

5 62.5 25

6 55 22

7 47.5 19

8 40 16

9 32.5 13

10 or more 25 10

It will be seen that if qualifying assets have been held for 10 years, then the effective rate of capital gains tax payable by a higher rate taxpayer on a gain made on a qualifying asset is 10%.

Under the new proposals the table for qualifying business assets will look like this:

Period asset held


% of gain chargeable Effective rate of CGT for higher rate taxpayers

0-1 100% 40%

1-2 87.5% 35%

2-3 75% 30%

3-4 50% 20%

4> 25% 10%

It is felt that greater entrepreneurial investment will be encouraged by the reduction of the taper relief period to 4 years. As can be seen from the table a higher rate taxpaying individual who had owned qualifying assets for the full 4 years would pay an effective rate of 10%. Of course, the higher rate of tax would remain at 40%. Taper relief would operate to reduce the gains subject to tax and, thus, the effective rate of tax payable on the whole (unreduced) gain.


Various anti-avoidance measures have been proposed and these are covered in detail elsewhere.


Share ownership changes could offer ISA opportunity

The new share ownership arrangements enable employers to give employees up to £3,000 of shares each year free of tax and National Insurance. In addition, employees will be able to buy partnership shares out of their pre-tax salary up to £1,500 a year free of tax and National Insurance and employers can give employees two […]

NICs and Unapproved Share Option Gains

Much publicity has been given to the fact that NICs are charged on gains arising when share options are exercised outside an Inland Revenue approved scheme and the shares are readily convertible into cash. Many e-commerce and high tech companies offer their employees substantial share options as part of their remuneration package. While employers can […]

Proof is in the pudding

Winston Churchill once rejected a pudding on the grounds that it had no theme. I know it&#39s a clich&#233 but I have been listening to the Chancellor and the leader of the Opposition and it is infectious.I am not quite clear whether this Budget has an overall theme. Lots of bits and pieces, many of […]

Investment for Venture Capital

Changes to the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme were announced to improve the way they work, make the schemes more attractive to investors and benefit small higher risk companies seeking funding.The changes will, primarily, reduce from 5 years to 3 years (for shares issued on or after 6 April 2000) […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm