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Certain business owners will not receive full advantage from taper relief due to lack of planning and proper advice. Some of the more common
pitfalls are as follows:

Failing to qualify as a trading company. This can arise because the company owns too high a proportion of its total assets in investments not related to its trading activities, or has minority investments in other companies.

Unwittingly restarting the taper relief clock. This can arise, for example, where shares are transferred to business associates shortly before the sale of the business to reflect previously agreed shareholding that have not been formally documented, resulting in the taper relief being recalculated from the date of transfer and a resultant loss of the tax benefit for the transferees. Or, if an owner gives away shares or other assets (by putting them into a trust for his children, for example) the clock starts ticking again from the date of the gift.

Where the shares sold are those of a subsidiary owned by a holding company, the holding company’s trading company status (and its eligibility to business asset taper relief) can be lost if there are other subsidiaries in the group that are not trading companies.

Where business assets attract both non-business and business taper relief it will take ten years of the qualifying holding period (under current taxation rules) to achieve an effective tax rate of 10%, and not two years as for business asset taper relief.