VCM25110 - EIS: Taper relief for serial investments: business or non-business asset: example 2: Taper relief does not apply to gains accruing or treated as accruing after 5 April 2008

Albert disposes of some shares in DEF Ltd to which deferral relief is attributable at a gain of £140,000. He held the shares from 1 August 1998 to 31 August 2003. A revived gain of £50,000 accrues to him when the shares are disposed of. The original gain in question, which had accrued on the disposal of an oil painting on 5 January 1998, had been deferred under TCGA92/SCH5B because qualifying expenditure on the DEF Ltd shares was set against it. The DEF Ltd shares do not qualify as a business asset for taper relief purposes at any time in the period Albert held them.

He invests £170,000 in shares in GHI Ltd and obtains deferral relief by setting £50,000 of the expenditure against the revived gain and £120,000 of the expenditure against the gain of £140,000. He pays tax for the year of assessment 2003-04 on £20,000, being the `unused’ part of the chargeable gain of £140,000. The qualifying holding period applicable for the £20,000 gain comprises 5 whole years so 85% of the gain is chargeable to CGT. The GHI Ltd shares are issued to him on 2 January 2006 and he disposes of them at a gain of £100,000 on 1 October 2012. The shares qualify as a business asset for taper relief purposes throughout the period Albert held them. He pays tax for 2012-13 on the £100,000 gain and on the earlier gains of £50,000 and £120,000 which are revived when he disposes of the GHI Ltd shares.

£100,000 Gain

This gain accrues on the disposal of a business asset. There are six whole years in the qualifying holding period, so 55% of the gain is chargeable to CGT.

£50,000 Gain

This gain is treated for taper relief purposes as accruing at the time of the disposal of the oil painting in the 1997-98 tax year. It does not, therefore, qualify for any taper relief.

£120,000 Gain

The qualifying holding period for taper relief purposes begins on 1 August 1998 and ends on 1 October 2012. The period between 31 August 2003 and 2 January 2006 does not count, see VCM25040. The length of the qualifying holding period is 14 years 61 days less 2 years 124 days so there are 11 whole years. The relevant period of ownership (the period of 10 years ending with 1 October 2012 leaving out the period which does not count) is 3,653 days long. It comprises 2,464 days for which the asset is treated as a business asset and 1,189 days for which it is treated as a non-business asset.

The revived gain of £120,000 is split into two gains for taper purposes. A gain of £80,942 (£120,000 x 2464 / 3653) arises on the disposal of a business asset and a gain of £39,058 (£120,000 x 1189 / 3653) arises on the disposal of a non-business asset.

Therefore, 25% of the gain of £80,942 and 60% of the gain of £39,058 are chargeable.