Capital Gains Tax rates are now far less punitive than they used to be in my day.
The Holy Grail of a 10% tax rate, hitherto the preserve of certain business disposal only, may be available to basic rate taxpayers incurring gains on chargeable assets other than residential property. For higher rate taxpayers, the rate is 20%. For residential property, the rates are 18% and 28% respectively depending on whether the chargeable gains fall within the basic or higher rate bands, for many very tolerable rates.
- I wanted to focus on investment in an Enterprise Investment Scheme (EIS) product. This seems particularly helpful to me. EIS offers:
- An Income Tax credit of 30%.
A deferral (in whole or part) of tax on other chargeable gains.
- Exemption from Capital Gains Tax on the disposal of the EIS shares.
Various criteria have to be met and essentially:
- The investor has to qualify.
- The shares have to be eligible.
- The Company has to be qualifying.
EIS is clearly a risky investment, hence the tax incentives to encourage investment. Any investor must be prepared to lose money and still be able to sleep at night.
Seed EIS is a riskier investment because it involves investment in start-up businesses but the income tax credit here is 50%.
The companies listed on the Alternative Investment Market are qualifying companies as they are not regarded as quoted. This provides a good opportunity to reduce the odds of failure, reduce not eliminate.
Holding shares in AIM companies can be a useful tactic for an older taxpayer who has sold a chargeable asset and has cash and hence vulnerable to Inheritance Tax at some point. Investment in AIM shares can secure Business Property Relief at 100% after two years.
EIS may not be for the fainthearted but it may be worth considering for anyone suffering Capital Gains Tax at 28% and with available cash to invest.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.