A package of major tax cuts to the capital gains tax (CGT) taper rules will boost productivity and increase the provision of risk capital, the Chancellor announced today. A maximum CGT rate of 10% will apply for business assets after just 4 years.

These changes will boost productivity by:
– reducing the CGT rates more quickly to reflect shorter holding periods of business asset investments and encouraging serial entrepreneurs
– promoting wider share ownership among employees, and
– increasing the incentive for the provision of risk capital to early-stage, entrepreneurial companies by ‘business angel’ investors.

The holding period for CGT taper relief for business assets will be reduced from 10 years to 4 years. A higher rate CGT payer will pay tax at 20% after 3 years and 10% after 4 years.

The scope of the business taper will be greatly increased by reducing the present thresholds of 5% (for full-time employees) and 25% (for others), so that:
– all shareholdings in unquoted trading companies
– all shareholdings held by employees in quoted trading companies, and
– shareholdings held by outside investors in quoted trading companies above a 5% threshold will qualify as business assets. All employees, not just full-time employees, will benefit from these changes.

The changes, which go further than those suggested at the time of November’s Pre-Budget report, will apply for disposals of assets after 5 April 2000.


1. For disposals on or after 6 April 2000, the new 4 year taper for business assets will apply for holding periods from 6 April 1998. The gains charged to tax will be reduced as set out in the table attached to the paper version of this Press Release.

2. For business assets, the additional year for assets held at 17 March 1998 will be consolidated into the new 4 year taper so that it will not be added for disposals on or after 6 April 2000. All CGT payers holding business assets will benefit from the enhanced taper relief.

3. For non-business assets, the existing 10 year taper, together with the additional year for assets held at 17 March 1998, will continue to apply.

4. The present thresholds for shareholdings in unquoted and quoted trading companies of 5% for full-time employees and 25% for others will be reduced so that the following shareholdings will qualify as business assets:
– all shareholdings held by employees and others in unquoted trading companies;
– all shareholdings held by employees in quoted trading companies;
– shareholdings in a quoted trading company where the holder is not an employee but can exercise at least 5% of the voting rights.

5. All employees, including part-time employees, of the company in which they hold shares (or any group company etc.) will qualify. Officers of a company are presently treated in the same way as employees and this will continue.

6. The threshold reductions will apply from 6 April 2000. Where shares qualify as a business asset only from that date, an apportionment of the eventual gain will be necessary so that part qualifies for business taper and the balance for non-business taper. The apportionment will be carried out under existing rules.

7, Unquoted companies will be defined as those which have no shares or securities listed on a recognised stock exchange. Shares traded on the Alternative Investment Market of the London Stock Exchange will be treated as unquoted.


1. CGT taper relief was introduced following the 1998 Budget to reduce the CGT charge, the longer an asset has been held prior to disposal. The present taper reduces the gain charged to tax over a 10 year period for both business and non-business assets.

2. The taper reduces the effective CGT rates for a higher rate CGT payer from 40% to 10% for business assets and from 40% to 24% for non-business assets.

3. Business assets are those used for the purposes of a trade and shareholdings in trading companies in which the holder can exercise 5% or more of the voting rights if a full-time employee and 25% or more otherwise.

4. The changes announced by the Chancellor reflect comments received following the announcement in the Pre-Budget Report (IR Press Release of 9 November 1999) of plans to shorten the taper and assess the case for substantial reductions in the thresholds to widen the scope of CGT incentives towards entrepreneurial investment. A summary of the responses to the consultation is being placed on the IR website

5. The changes announced today reflect the rapidly changing holding characteristics of equity investment, particularly in high-tech companies. They will encourage employees to hold a stake in the company they work for and outside ‘business angel’ investors to provide risk capital for growing companies.

6. These changes are estimated to cost: Negligible in 2000/01; #225 million in 2001/02; 275 million pounds in 2002/03. The cost will rise to 600 million pounds in 2004/05 and then fall to an on-going level of #400 million per year by 2009/10.

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