Sell A Property And Benefit From Taper Relief

27/11/2007 EDIT:

From the 6th of April 2008 Taper relief will be abolished. Chancellor Alastair Darling announced that taper relief will be abolished, and will be replaced by a flat 18% tax rate.

Following the abolition of taper relief, when any such loan notes are redeemed or otherwise disposed of after April 5, no taper relief will be available on those disposals.

If you plan on selling a property anytime soon, might be worth selling before the 6th of April 2008, to avoid the new flat rate.


What is Taper Relief?

Essentially, taper relief is a relief from Capital Gains Tax (CGT). The relief was introduced with effect from 6 April 1998. The basic premise for tapered relief is to reduce the capital gains tax that an individual must pay when they dispose of an asset. Its purpose is similar to indexation, in that it aims to reduce the amount of capital gains tax you have to pay when selling property.

Who can Benefit from Taper Relief?

The relief is available to individuals, trustees and personal representatives. However, taper relief cannot be claimed by companies; consequently, anyone that has a property related company cannot take advantage of this relief.

Primary residences are exempt from capital gains tax but profit made on most second properties, such as buy-to-let, are taxable.

Qualifying Holding Period

If you purchased a property before the 6th of April 1998, the holding period for taper relief will only account from the moment after the date of introduction. For example, if you bought a property on 6th April 1997 and sold it in 6th April 2007, you will only be liable to claim 9 years taper relief.

How is Taper Relief calculated?

The longer you hold assets the more taper relief you get. For example, if you sell a property after three years, you qualify for the minimum of 5% taper relief, whereas if you hold a property for ten years or more you qualify for the maximum of 40% taper relief.

Number Of Years in Qualifying holding periodTaper Relief (%)
10
20
35
410
515
620
725
830
95
10+40

Example
Robert buys a property for £100,000 and sells it after ten years for £300,000. Ignoring various costs his capital gain is £200,000. His taper relief is 40% of this amount: £80,000. In other words, he does not have to pay any capital gains tax on £80,000 worth of profit.

Factors that can affect the length of holding period

  • where an inter-spouse transfer is involved, the holding period is the combined ownership period of both spouses (note that this may be extended to registered civil partners)
  • where a no gain/no loss event has taken place (eg gains held over on making gifts, or gains rolled into shares onincorporation) the holding period is based on the new owner’s ownership period or the holding period of the new asset
  • gains deferred by reducing the cost of a replacement asset through roll-over relief only get taper relief by reference to the length of ownership of the replacement asset
  • where a gain on a disposal is deferred to a later occasion through reinvestment, for example into an Enterprise Investment Scheme, the taper will operate by reference to the holding period of the asset on which the deferred gain arose.

Final note

  • Taper relief is extremely beneficial for long term property investors. Short term investors (i.e investors that flip property) may find it more beneficial in terms of tax relief to hold properties under a company- more details in this article, Using A Property Company To Save On Tax.
  • The taper relief rules are potentially complex, and professional advice should be sought in appropriate cases.

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6 Comments- Join The Conversation...

Guest Avatar
Victoria 26th November, 2007 @ 22:02

Didn't they just abolish taper relief?

V

1
The Landlord Avatar
The Landlord 27th November, 2007 @ 09:17

Hey V,

I know it was proposed to be a flat 18% fee for private equity, I wasn't aware the rule had been made active.

I'll look into it.

Thanks for the heads up.

2
The Landlord Avatar
The Landlord 27th November, 2007 @ 09:22

Ok, just checked it out, V. Taper relief will be abolished in April, and will move over to the flat rate of 18%.

I'll update the article then. I wasn't aware it was set in stone just yet :)

3
The Landlord Avatar
The Landlord 27th November, 2007 @ 09:28

God, 18% seems a bit low, especially since it could have potentionally been 40%.

E.g
I have owned my business for over 25 years and if i wished to sell now my capital gains tax, allowing for indexation and taper relief, would work out at £59,000 - if I do not sell until after the 6th of April next year my Capital gains tax payable will increase to £144,000

The government is really hitting people where it hurts.

4
Guest Avatar
Victoria 27th November, 2007 @ 11:46

Maybe this explains some of the current property market slump; oversupply of properties as people rush to get them sold before the revised regulations come in.

5
Guest Avatar
wamstax 27th September, 2012 @ 10:02

Watch out as the tax rate can be 28% if the amount of the gain when added to your other income takes you into higher rates. Not as good as 18%

6

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