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Taper relief |
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Taper reliefTaper relief was introduced into the UK taxation regime with effect from 6th April 1998. Its purpose is similar to indexation, in that it aims to reduce the amount of capital gains tax you have to pay when you sell shares, to account for the effect of inflation.But there is a critical difference. Whereas indexation works by increasing the base cost of an asset, taper relief works by reducing the gain by a 5% a year for every year it was held regardless of the base cost. This is significant because if the base cost of an asset was zero, indexation does not help. Taper relief, on the other hand, does. To qualify for taper relief, your shares have to be held for a minimum of 3 years. If you sell within that period, no taper relief will be available.For each whole year that you have held shares from the date of acquisition to the date of disposal, you can reduce the gain by 5%. The maximum relief available is 40%, after 10 years.Assets held on or before 17 March 1998 qualify for an additional year of taper relief, and the 'three year' requirement does not apply.ExampleYou buy 1,000 shares in Multimower plc in February 1998 for £2,000You sell the shares in August 2000 for £5,000You pre-taper gain is £3,000. Taper relief is available for three years (15%) = £750Your reduced gain is £2,250Note that in the above example, taper relief was available even though the shares had not been held for three years, because they were owned on 17th March 1998.Taper relief applies to each individual share acquisition, so if you dispose of a holding built up over a number of years after 5 April 1998 then the gain on each acquisition has to be calculated individually and taper relief applied to each one individually. The good news is that a holding which you had at 5 April 1998 can be treated as one element, as shown above.Similar MatchesDebt reliefDebt reliefReducing the principal and/or interest payments on Less developed country loans. Holdover reliefHoldover reliefThe practice of deferring capital gains tax liability on a gift by transferring the liability to the recipient. When the recipient eventually sells the gift, the full CGT bill will normally fall due then, and the recipient will have to pay it, not the donor.To put this in context, remember that normally when a person makes a gift of, say, shares to anyone other than his/her spouse, the gift is deemed to have been made at fair market value and will be liable to capital gains tax if a gain has been made. This can be unattractive to the donor because he/she will not actually have made a gain, and won't have received any money at all if the asset was given freely. Holdover relief puts the tax burden on the recipient rather than the donor, and postpones the time when it has to be paid. Import reliefImport reliefUsually refers to some form of restraint of imports in a particular sector in order to assist domestic producers, and with the connotation that these producers have been suffering from the competition with imports. If done formally under existing statutes, it is administered protection, but it may also be done informally using a VER. Retirement reliefRetirement reliefA special relief for Capital Gains Tax purposes which applies when an individual aged 55 or over disposes of his business or an interest in a business. Rollover reliefRollover reliefA capital gains tax relief which applies when an individual disposes of a business or an asset used in a business and spends the proceeds on acquiring replacement assets during a qualifying period (normally up to one year before and up to three years after the date of the disposal of the original asset). Further Suggestionsbusiness property relieftax relief double taxation relief life assurance premium relief Tax relief mortgage interest relief at source agricultural property relief Debt relief |
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