How to Save Taper Relief

Newsletter issue - March 08.

Taper relief reduces the taxable gain made on business assets by up to 75% and by up to 40% if the assets don't qualify as business assets. However, taper relief will also be withdrawn on 5 April 2008, which has annoyed those who are about to sell their businesses. The new Entrepreneurs' relief will partially restore the taper relief position where you are selling all or part of your business but this does not apply to everyone.

To qualify for entrepreneurs' relief on the sale of shares you have to own at least 5% of the company and be an employee or director of that company for at least a year. If you acquired your shares as part of an employee share scheme, or you don't work for the company, you will lose your taper relief (possibly at 75%) and won't get the entrepreneurs' relief. In order to bank your taper relief you need to sell your shares by 5 April 2008, but you may want to hang on to them, as they are a good investment.

In which case you could sell the shares but use one of the following strategies to reacquire a similar number and value of the same shares:

• After 30 days you buy back the same number of shares. You need to delay the repurchase by at least 30 days as otherwise your sale and purchase are matched for tax purposes and you can't take advantage of the taper relief. This is a risky strategy as you may have to pay more for the replacement shares if the share price has increased in that 30 day period.
• Ask your spouse to immediately purchase the same shares. They can then give those shares to you in a no-gain, no loss transfer.
• Ask the trustees of your Self Invested Pension Plan (SIPP) to buy the same shares as soon as you sell them.
• Ask the fund manager of your ISA to buy the same shares.

In the last two options (SIPP and ISA) you do not have direct control of the shares but you still benefit from their growth in value in the future.