UK: Maximising the Cash on Company Sales

The Benefits of CGT Taper Relief
Last Updated: 27 May 2002
Article by Lisa Parisi

Everyone wants to get the most out of a company sale and the tax regime today means that with a little care and forward thinking shareholders and business owners can do just that.

For many shareholders the days of complex and aggressive capital gains tax (CGT) planning prior to a sale of their shares are over. The very valuable taper relief, which at its best can reduce the effective tax rate on sale to 10 per cent, has been further enhanced so that that rate can now be reached after only two years' ownership.

In fact, taper relief is now so valuable that pre-sale tax planning is less complicated. That's the good news. The key is for shareholders to ensure that they maximise their taper relief position and take care to ensure existing business asset taper relief is not affected by changing activities within the company. Achieving this virtuous position is a little more complicated.

Taper relief was introduced in 1998 and has been changed in each Budget since that date. Shareholders and their advisers therefore have to grapple with rules that are complex and vary depending on the period considered. Here are some of the principal issues.

Will the shares be 'business assets'?

If they are not, they will only benefit from the other form of the relief which gives an effective 24 per cent tax rate after ten years. Except in the case of small minority holdings held by employees, for shares to qualify as business assets it is necessary for the company or group to be 'trading'. Any non-trading activity undertaken or assets held by the company/group could prejudice the relief. For example, in many family companies spare cash may be invested rather than used in the business. This investment activity can mean business asset taper is lost. In some companies there may be more than one activity, only one of which is trading. In those circumstances, shareholders might, for example, consider whether it is possible to split the business so that business asset taper will apply to part.

What if shares are not 'business assets'?

This may apply, for example, to certain shareholders in property or other investment companies. For those shareholders, there are still ways in which the tax charge might be reduced to as low as nil and, in those circumstances, more innovative tax planning is still very much on the agenda. For those who are less brave, tried and tested methods can be implemented to reduce the tax rate on sale to 25 per cent.

What about loan notes? Will these still be used to defer gains?

Historically, selling for loan notes has been used as a way of deferring the tax bill and, under the taper relief rules, improving the taper relief position. Structured correctly, the period of ownership for taper relief purposes continued to run during the period the loan notes were held so shareholders could reach the 10 per cent rate even though they sold out before it was available. Now that the holding period has reduced to two years, this will be less common. In cases where it is still used, changes to be brought in in the Finance Act mean that shareholders have more certainty as to the form the loan notes need to take to achieve the desired result.

What if shares have not always been business assets?

Where shares have been business assets during only part of the period of ownership, it is necessary to apportion the available relief to the business and non-business periods and calculate the 'blended' effect. In many cases, this means that the 10 per cent rate will not be achieved until 2010! Despite lobbying, the Government has decided to retain these provisions, which can result in complex calculations. This is particularly relevant to shareholders who hold less than 25 per cent of the votes (or less than 5 per cent if employees). Up until April 2000 their shares were not business assets for taper relief purposes so on a sale now, for example, their effective rate would be around 21 per cent rather than the 10 per cent they may be expecting.

Can shareholders avoid the blended taper relief?

Shares and loan notes can normally be transferred into trusts in order to restart the taper relief 'clock' and 'lose' non-business periods. Of course, this is only worth doing where a shareholder is confident that there will be no sale for at least one year as initially the potential effective CGT rate goes back up to 40 per cent. In addition, there are certain downsides which the shareholder needs to be aware of, so professional advice is needed. Where this form of planning is appropriate, it is obviously best for it to be implemented sooner rather than later to set the 'clock' ticking.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.