The revision of the capital gains tax (CGT) regime in 1998 saw the introduction of taper relief. This has the effect of reducing the CGT charge on sale of an asset according to how long the asset has been owned and whether or not it is a business asset. The definition of business asset has now been further relaxed although the changes will not take effect until 6 April 2004.
Currently the rules for determining whether assets other than shares or securities qualify as business assets for taper relief purposes generally require that the owner of the asset uses it for trading purposes. The exception is where an investment property is let to an unquoted trading company.
The changes will mean that assets used for trading purposes will qualify as business assets irrespective of whether the owner is involved in carrying on the trade concerned. More specifically an asset will be a business asset when it is owned by an individual, the trustees of a settlement, or the personal representatives of a deceased person and is being used by a sole trader, partnership or unquoted trading company.
The change will benefit for example the typical ‘husband and wife’ scenario where one spouse owns the business property and the other runs the trade.
The changes are welcome although the delay in their introduction is not. They will remove the current anomaly which has existed since April 2000 whereby an investment property is a business asset if let to an unquoted trading company but not if let to a partnership (in which the owner is not a partner).
Note that where a property is let to a quoted trading company for use in its trade it will only be a business asset if the owner also owns 5% of the quoted company or owns less than 5% but is employed by the company.
Please talk to us if this is an area of concern or interest for you. In particular bear in mind that because the changes do not take effect until next year any benefit will not be immediate. Furthermore, even when the changes are introduced, the property will only be treated as a business asset for the period from 6 April 2004 onwards. Gains relating to earlier periods of ownership will only be eligible for non-business taper.