Capital Gains Tax Taper Relief Abolished: What Replaced It

Capital gains tax taper relief was a UK tax rule, in force from 6 April 1998 to 5 April 2008, that reduced the portion of a capital gain subject to tax based on how long you had owned the asset. It did not lower the CGT rate itself. Instead, it shrank the slice of the profit that entered the tax calculation, and the longer you held, the smaller that slice became. Business assets could reach maximum relief in four years; non-business assets needed ten. The regime was abolished in the 2008 Budget and replaced first by a flat 18% CGT rate, with a separate reduced rate for qualifying business disposals that survives today as Business Asset Disposal Relief.

How Taper Relief Worked

Assets fell into two categories. Business assets included shares in a company where you worked, shares in qualifying private trading companies, and property used directly in a trade or profession. Non-business assets covered everything else: second homes, rental properties, personal investment portfolios, and land not used commercially.

The mechanic mattered. Taper relief did not touch the CGT rate. It reduced the percentage of the gain that was chargeable. A higher-rate taxpayer still paid 40% CGT, but on a shrinking base. The rest of the gain effectively fell out of tax.

Business Asset Taper Rates

The Finance Act 2000 rewrote the original 1998 schedule and cut the time to maximum relief for business assets from ten years to four. After that revision, the chargeable percentages were:1House of Commons Library. Capital Gains Tax Background History

  • Less than 1 year: 100% chargeable
  • 1 to 2 years: 87.5% chargeable
  • 2 to 3 years: 75% chargeable
  • 3 to 4 years: 50% chargeable
  • 4 years or more: 25% chargeable

An entrepreneur who sold a qualifying business after four years paid CGT on only a quarter of the profit. At the 40% higher rate, that produced an effective rate of 10% on the total gain. On a £400,000 profit, the bill dropped from £160,000 without relief to £40,000.

Non-Business Asset Taper Rates

Non-business assets moved much more slowly. No relief applied at all until three complete years of ownership, and the maximum reduction required a full decade:

  • Less than 3 years: 100% chargeable
  • 3 years: 95% chargeable
  • 4 years: 90% chargeable
  • 5 years: 85% chargeable
  • 6 years: 80% chargeable
  • 7 years: 75% chargeable
  • 8 years: 70% chargeable
  • 9 years: 65% chargeable
  • 10 years or more: 60% chargeable

A higher-rate taxpayer selling a holiday home after ten years paid CGT on 60% of the profit. At 40%, that came to an effective 24% of the total gain. On a £200,000 profit, £48,000 rather than £80,000. The gap between the two schedules was deliberate: policy favoured capital flowing into active businesses over passive holdings like second properties.

How the Holding Period Was Counted

Only complete years counted. An asset held for nine years and eleven months was treated as held for nine. Sellers who missed an anniversary by weeks lost a full year of relief, so timing a disposal around the ownership anniversary could save thousands of pounds.2University of Reading. The Finance Acts 1998 and 2000

For assets already owned when the system launched, the clock started on 6 April 1998 rather than the original acquisition date. The Finance Act 1998 originally added a bonus year for anyone who had acquired an asset before 17 March 1998. The Finance Act 2000 later removed that bonus year for business assets and folded its effect into the accelerated four-year schedule.1House of Commons Library. Capital Gains Tax Background History

Disposal was measured from the date the sale contract became unconditional, not the date money changed hands. On a property sale, a delayed completion could shift the holding period by weeks or months, so the contract date, not the completion date, was the one that mattered.

Why Taper Relief Was Abolished

In the 2008 Budget, Chancellor Alistair Darling scrapped taper relief and introduced a single flat 18% CGT rate on all gains, regardless of holding period or asset type.3House of Commons Library. Capital Gains Tax the 2008 Reforms Part of the pressure came from private equity fund managers, who were structuring compensation as capital gains on business assets and paying an effective 10% while salaried employees paid 40% income tax on their earnings.

The other driver was simplicity. Tracking holding periods, splitting assets between business and non-business categories, and accounting for the bonus year had built up a compliance burden that critics said outweighed the policy benefit. The flat 18% rate was intended to make CGT predictable for taxpayers and the Treasury alike. For long-term holders of business assets who had been paying an effective 10%, the change landed as a sharp tax rise overnight.

What Replaced Taper Relief

The 2008 flat rate did not last long. UK CGT rates have moved several times since, and the annual exempt amount has been cut sharply. For the 2025-26 tax year:4GOV.UK. Capital Gains Tax Rates and Allowances

The exemption was £12,300 as recently as 2022-23, so far more gains now cross the taxable threshold than during the taper relief era.

Business Asset Disposal Relief

The main successor for business owners is Business Asset Disposal Relief (BADR), introduced in 2008 as Entrepreneurs’ Relief. It applies a reduced CGT rate to qualifying gains up to a £1 million lifetime limit.6UK Parliament. Written Evidence Submitted by the Chartered Institute of Taxation FB08 For disposals between 6 April 2025 and 5 April 2026, the BADR rate is 14%.7GOV.UK. Business Asset Disposal Relief From 6 April 2026 it rises to 18%, which removes the discount entirely for basic-rate taxpayers.8GOV.UK. CG64174 Business Asset Disposal Relief Rates From April 2025

Unlike taper relief, BADR has no sliding scale. You either qualify or you don’t. Qualifying generally requires at least a 5% stake in a trading company you work for, or the disposal of all or part of a business you have run for at least two years. The £1 million lifetime cap is a fraction of the previous £10 million limit, so owners with larger gains get far less benefit than they would have under the old taper regime.