Taper Relief on Let Property

Since its introduction from April 1998, taper relief has become a key tax planning issue for those who expect to realise a capital gain some time in the future. This relief operates by reducing the capital gain liable to tax by reference to the type of asset and length of ownership:

To maximise taper relief, and obtain an effective rate of capital gains tax of only 10% for the higher rate taxpayer (ie: Gain * 25% * 40%), investors should hold business assets for at least 2 years after April 2002.

When these rules were introduced, it was understood that property investments were non-business assets, qualifying for the less generous taper relief regime. When updating these tax rules in his 2000 Budget, however, it is widely believed that the Chancellor introduced a drafting error which lead to a 'loophole' being created in the rules where property let to a tenant who was an unquoted trading company, was classified as a business asset. For landlords seeking to let premises, there was, therefore, a bias towards corporate tenants. The Chancellor extended this 'loophole' in the 2003 Budget, with property let to unincorporated businesses being reclassified as a Business Asset from April 2004 onwards. Although this anomally has now been corrected, there is still a two tier regime, where properties let to business tenants attract a much more generous taper relief regime than properties let to residential tenants.

Other Practical Examples of our Capital Gains Tax Expertise

Income and capital gains tax on buy-to-let residential property. Advising on the tax treatment of selling off part of your garden as a building plot.

Sheltering appreciating assets within your own pension fund, to shelter them from CGT. Bed and Breakfasting shares sitting at a gain.