The amount chargeable to CGT is added onto the top of your income liable for income tax and is charged at the following rates

• below the starting rate at 10
• between the starting rate and basic rate limits at 20
• and above the basic rate limit at 40.

• The taper relief has the effect after two years of bringing down the equivalent tax rate on business assets to 10 for higher rate taxpayers and 5.5 for basic rate taxpayers. On non-business assets the rates come down after ten years to 24 for higher rate taxpayers and 13.2 for basic rate taxpayers.

  The taper relief works like this. Lets say you purchased an asset in 1995 for £40000 and sold it prior to April 2002 for £100000. You still qualify for relief under the indexation allowance for the period from 1995 to April 1998. This is calculated at £3640. The holding period for taper relief is four years 1998 1999 2000 and 2001.

  The chargeable gain is worked out like this

  Proceeds - £100000
  Less Cost - £40000
  £60000
  Less Indexation £3640
  £56360

  Non-business asset

  90 x £56360 gives a chargeable gain of £50724.

  Business asset

  25 x £56360 gives a chargeable gain of £14090.

  For a higher rate taxpayer that would mean a tax bill of £20289.60 on disposal of a non-business asset and of £5636 on a business asset. Against this bill you could offset any relevant capital losses and your CGT personal allowance £8200 for 20042005.

  You are already receiving the maximum taper relief for business assets. Had you decided to hold on to your asset until the year 2008 giving a holding period for taper relief of ten years offering the maximum relief for non-business assets the sum would look like this. Lets assume your selling price is now £140000 thanks to the longer holding period.

  Proceeds £140000
  Less Cost £40000
  £100000
  Less Indexation £3640
  £96360

  Non business asset

  60 x £96360 gives you a chargeable gain of £57816.

  For a higher rate taxpayer that would mean a tax bill of £23126.40 on disposal of a non-business asset.

  
  

  Moneyextra.com recommends you take independent financial advice before acting on any article

  Back

  2009-02-17 00:00:00 © Moneyextra.com

  • Mortgages
  • Loans
  • Bill Shrinker
  • Vouchers & Shopping
  • Debt Help
  • Credit Cards
  • Prepaid Cards
  • Investing
  • News Centre
  • Videos
  • Guides

  Moneyextra.com is authorised and regulated by the Financial Services Authority (FSA FRN 488578).
  Moneyextra.com Ltd is registered in England no. 06553530. Registered office: Eversheds House, Great Bridgewater Street, Manchester, M1 5ES
  For any debt related enquiries please contact our partner companies Debt Free Direct and ClearStart Debt Management