Apologies for probably being very dense, but I have been emailed by the FSB about their campaign to reverse the decision to abolish taper relief in favour of 18%. I have tried reasearching this on the web but can only find HMRC tables stating business assets get taper relief of either 50% or 75% depending on length of time, not 90% so where did this old figure of 10% come from?
I am obviously looking in the wrong place, Can someone elaborate in words of one syllable.
Thanks
Louise Williams
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10% or not 10%
Higher rate taxpayers pay tax on capital gains at 40%. Taper relief on business asset held for at least 2 years = 75%. Therefore capital gain is effectively taxed at 10% (25% x 40%), ignoring the annual exempt amount.
If that is still unclear try a worked example. Say a higher rate taxpayer makes gain of £19200 in 2007/08 on a business asset held for more than 2 years. Annual exempt amount is £9200 therefore chargeable gain is £10000. Taper relief reduces chargeable gain to £2500 and tax at 40% thereon = £1000. So effective rate of CGT = 10% (£1000/£10000).
Bad example
Taper relief is deducted before the annual exemption. So, in Kevin's example, the gain of £19,200 gets 75% taper relief, thus reducing the taxable gain to £4,800. This is less than the annual exemption of £9,200, so no CGT is payable.
It is only under the new proposals that the exempt amount will be deducted from the gain and the balance taxed at 18%. So, the gain of £19,200 would become a taxable gain of £10,000 on which £1,800 of CGT would be payable.