CGT - Indexation and Taper allowances

In need of someone who was practicing in 2002/03

Didn't find your answer?

Hey everyone,

A client has informed me that a trust, that he is the trustee of, has sold a property for £500k.

We did not act for him or the trust until recently and so I am having trouble getting the details of the gain that was held-over when the property was put into trust.

HMRC cannot locate both the hold-over claim and CGT disposla on the 02-03 return and so I suspect that this was not done at the time that the property was gifted to the trust.

I am trying to calculate what the held-over gain would have been in 02-03 but I am at a disadvantage as I only started practicing in 2007 (the end of the indexation and taper allowance for individuals era). My question is this, does the indexation and taper allowance get brought into account when calculating the trust's base cost and if so how is this calculated?

Thanks in advance for the help from some of my more experienced professional fellows!

Replies (5)

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By Tax Dragon
22nd May 2021 07:27

You don't need to be more experienced or a fellow to have a stab at answering this. Of course, knowing how holdover relief works (by changing the deemed proceeds) would be a fantastic starting place, as surely that immediately answers the taper relief point without any research. At least, I can't envisage how you could both hold a gain over and either taper it or reduce the rate of tax applied to it, whichever it was that taper relief did (I did learn, but it's not knowledge I routinely use, and wouldn't trust myself to say). If that turns out to be a failure of my imagination, I apologise.

You may need to have access to historic law for the indexation answer, but armed with my HOR knowledge and 2 minutes with a search engine I find:

For individuals, indexation allowance was frozen in 1998 and then eliminated in 2008.

Surely IA for individuals worked the same way as for companies (a reduction in calculating the gain)? Absent a rule (which you may need a wise old man to remember, if you don't have historic references) that disapplied the allowance in calculating HOGs, the default would be that the allowance applied.

But... as I write that it occurs to me there may have been such a rule. To stop people 'artificially' pocketing the allowance without really disposing of the asset.

Hm. Not sure I've actually been much help in hindsight. Some though, yes. So I'll post. Even though it probably now makes me look a bit foolish. Pfft.

Thanks (1)
Replying to Tax Dragon:
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By Liam.em
24th May 2021 11:43

Thanks for replying.

Yes well your thought process seems to be exactly the same as mine. My gut feeling is indexation is taken into consideration when calculating the held over gain but taper is not but I do like to see confirmation via legislation/guidance.

Give that it was approx 15 years ago, that is proving tricky!

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Replying to Liam.em:
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By Tax Dragon
24th May 2021 13:03

Use leg.gov - see how Ss53-7 have changed with time (specifically, select the law in force in 2002/03).

Similarly for taper.

Thanks (1)
paddle steamer
By DJKL
24th May 2021 14:37

Found Tolleys CGT 2000-2001 on bookcase , it says re holdover relief,

" where there is no actual consideration for the disposal , or where an actual consideration does not exceed the allowable expenditure within TCGA 1992 s 38 relating to the asset, the effect of a claim is that the gain otherwise chargeable on the transferor apart from this relief and the transferee's acquisition cost are each reduced by the "held-over gain""

It then says after this

(Note. Indexation allowance is deductible in arriving at the gain otherwise chargeable but is not allowable expenditure within TCGA 1992 s38)

Re Taper Relief I have,

"It is implicit in the legislation that the gain to be held over , where such a claim is made on the transfer of an asset within 25HOLD-OVER RELIEFS , is the untapered gain; as stated in 60.2 above, taper relief is given only on gains left in charge after all reliefs other than the annual exempt amount have been taken into account"

P.S. Presume this was some form of business asset?

Thanks (1)