Thought about the ‘Enterprise Investment Scheme’?

When selling surplus residential property you may have to pay up to 28% on the gain you realise in Capital Gains Tax (CGT). In the right circumstances this tax could be significantly reduced by investing all or part of the gain into an Enterprise Investment Scheme. In an effort to balance the books, measures have been taken to raise the tax burden on individuals who are second homeowners or hold a property rental portfolio. This has had quite an impact on those farmers who may have diversified and use farm property to make use of their assets and generate additional rental income. Farm property has frequently been held in the same ownership for decades, so the capital gain is often substantial. To maximise the opportunity to defer tax when any asset is sold investing the proceeds into an Enterprise Investment Scheme will provide a tax deferral. However, unlike rollover relief you do not need to invest the whole proceeds – any part of the gain invested attracts the deferral relief. It is important to understand that such investment does carry investment risk and recent changes by the chancellor on the qualifying criteria for Enterprise Investment Schemes has increased this however; the tax benefits obtained still makes this an attractive option to consider for those who will incur CGT at 28% and a large tax bill. There are other benefits too – in certain circumstances it is possible to obtain up to 30% of the value of the investment made (up to a maximum of £1 million) against an income tax liability of up to £300,000. In addition some may qualify for business property relief for inheritance tax purposes. The EIS shares must be held for at least three years from the date of investment. Where the investment is held for three years or more, any profits made within the EIS will be tax-free. The deferred CGT if realised will become payable at a reduced rate at the point of selling the EIS shares or sold each year within your annual CGT allowance. It is essential that you seek professional advice on the suitability of this form of investment and whether it is right for you, for an initial meeting to discuss contact: Claire Musson or Paul Holt at Albert Goodman Chartered Financial Planners.