Capital Gains Tax in turbulent equity markets

Many remember the 1998 Capital Gains Tax changes introduced by Gordon Brown in order to simplify the CGT regime; Indexation was frozen for individuals and taper relief was introduced. This aimed to encourage long-term investment and the investment in smaller companies and employee share schemes.

It is apparent that in turbulent equity markets, where CGT can alter the Profit/Loss of a trade, the opportunity to utilise taper relief is crucial. Where gains are made, and taper relief accrued, there is a vast threat of losing this taper relief to subsequent losses.

Losses are offset against un-tapered gains, and once this has taken place, any taper relief that was previously available is expended.

Where losses exist there is something to be said for taking a 'short-term' view upon gains. Justification for this lies with the fact that whilst taper relief accrues on an annual basis, it takes three years before non-business assets are entitled to any taper relief. It is therefore evident that disposing of these assets, with the objective of achieving a Ôshort-term' gain has no disadvantage, as losses are offset against un-tapered gain.

With business assets accruing up to 75% taper relief they are worth protecting against losses. If gains upon an asset are offset by a loss, taper relief can be retrieved by creating subsequent non-tapered gains (or gains with a lower % taper relief). Losses are offset against gains in ascending order of available taper relief.

There are many factors to be taken into considerations where losses exist, and with careful planning valuable taper relief can be protected.