May 30, 2022

Capital Gains Deferral and possible benefits of Enterprise Investment Scheme

Are you thinking about selling a property but worried about your capital gains tax (CGT) bill?

Did you know you can defer the gain by rolling it into a specialist investment called an EIS (Enterprise Investment Scheme).

EIS – What is it?

It is a government-backed initiative, encouraging people to invest in shares in early-stage businesses.

The encouragement is by way of tax reliefs – i.e. Capital Gains Deferral

In practice this works by reinvesting the gain from the sale of e.g. your property, or shares – into an EIS and deferring this gain over the life of the investment
When the gain comes back into charges – i.e. the EIS shares are sold – it is subject to CGT at that time
But you might be a lower rate taxpayer by then, so you’ll pay less CGT

You may also get

30% Income Tax Relief – e.g. invest £10,000 and you can claim £3,000 back from HMRC
Tax-free Growth – this is particularly important when you consider how much a new company might grow in value
Inheritance Tax Relief – the shares can be left to beneficiaries free from IHT (as long as they’ve been held for minimum of 2 years and are still held at the time of death)
Loss Relief – this reduces the impact of losses made on individual companies

Risk warnings: The value of an EIS investment can fall as well as rise. Investors might not get back the full amount they invest. Tax treatment depends on individual circumstances and might change in the future. Tax reliefs depend on companies maintaining their EIS-qualifying status. Investors need to hold shares for three years to keep any tax reliefs claimed. Investors should be prepared to hold their shares for significantly longer to allow time for growth and exit. Investments in smaller companies can fall or rise in value much more sharply than shares in larger, more established companies. They can also be harder to sell.