Tax and your investments

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11. Taper relief

Please note that the below is just for reference, as indexation and taper relief were abolished in April 2008.

Taper relief was introduced with effect from 6th April 1998. Its purpose was similar to indexation, in that they both aimed to reduce the taxable gain when you sold an asset to account for the effect of inflation.

But there was a critical difference. Whereas indexation worked by increasing the base cost of an asset, taper relief worked by reducing the gain by 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 did not help. Taper relief, on the other hand, did.

• To qualify for taper relief, your shares would have had to be held for a minimum of 3 years. If you sold within that period, no taper relief would have been available.
• For each whole year that you held shares from the date of acquisition to the date of disposal, you could reduce the gain by 5%. The maximum relief available was 40%, after 10 years.
• Assets held on or before 17th March 1998 used to qualify for an additional year of taper relief, and the "three year" requirement did not apply.

Example

• You buy 1,000 shares in Multimower plc in February 1998 for £2,000
• You sell the shares in August 2000 for £5,000
• You pre-taper gain is £3,000. Taper relief is available for three years (15%) = £450
• Your reduced gain is £2,550

Note 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.

1. Keeping it legal 2. How HMRC treats your investment income 3. Keeping records 4. The basis of dividend income 5. Dividend income 6. Interest income 7. Interest on Treasury Stock 8. Capital gains tax basics 9. Base cost 10. Indexation 11. Taper relief 12. Indexation and taper relief - together! 13. Date of acquisition 14. Disposal proceeds 15. Disposal of a holding with a history 16. Takeovers 17. Bonus/scrip issues 18. Share splits 19. Buybacks 20. Rights issues 21. Share options 22. Beneficiaries and minors 23. Calculating your CGT liability 24. Using your annual CGT exemption 25. Transfers between spouses 26. ISAs 27. Delaying capital gains 28. Other tips to reduce CGT liability 29. Conclusion