Have you paid Capital Gains Tax (CGT) in the last few years? Do you have a CGT liability coming up? Are you considering investing in a business? If so, with a bit of planning, it may be possible to defer your CGT liability and even claim a repayment for tax already paid!
Many businesses are now seeking investment from a wider range of sources than those traditionally used and significant tax incentives are often available to encourage investors to take these opportunities up.
The Enterprise Investment Scheme (EIS) is one such incentive. Whilst conditions apply to both the investor and the company in which the investment is made, the scheme offers a range of tax reliefs to the investor.
The high risk element of investing in EIS shares should always be considered carefully however the tax reliefs that may be available include Income Tax relief, CGT exemption on disposal, loss relief against income where the shares are sold at a loss and, as a shareholding in an unlisted trading company the shares may also, after two years, be exempt from Inheritance Tax.
There is however another relief attached to the scheme which is often overlooked – CGT Deferral Relief.
When an individual disposes of an asset and makes a gain on it, this would usually be chargeable to CGT in the tax year in which the disposal took place. Where a qualifying investment in EIS shares is made, either during the one year period leading up to the disposal of the asset, or the three year period following the disposal, Deferral Relief allows the gains, up to the amount invested, to be treated as arising at a future date. Where the CGT liability has already been paid, a claim for repayment may be made.
In general, providing the EIS criteria are met, the deferred gains would not be become taxable until the shares are disposed of. Even then it may be possible to defer the gains again where a further EIS investment is made. Where the EIS shares are still held at death, the deferred gains are not taxable at all.
The conditions for Deferral Relief are more relaxed than those that apply to the other reliefs under the EIS scheme and it may be possible to claim Deferral Relief even where the other reliefs aren’t available. In particular, whilst investors who are connected to the company are not able to claim Income Tax relief, Deferral Relief may still be available!
Rennie Welch LLP accepts no liability on the basis of this article and professional advice should always be sought based on specific circumstances. For advice or assistance please contact Lynn Miller at Rennie Welch LLP either by email at firstname.lastname@example.org or by telephone on 01573 224391.
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