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  • Tax

    Avoiding CGT when selling up

    It may be that due to s24 your only option is to sell up. The downside is that you could have a lot of capital gains tax to pay. If you’ve been a long term investor this should be the case. Well there is a solution for the more adventurous among you. 

    You could reinvest the proceeds from a sale into an Enterprise Investment Scheme (EIS). Doing this would shelter all the gains on your property. 

    Let’s say you sell a house for £200,000 and make a gain of £100,000 ignoring any other reliefs. This could give you a tax bill of £28,000 (28% of £100,000). If you invest that £100,000 into an EIS you can defer the CGT indefinitely. The gain only becomes due when you sell the EIS investment. 

    There is further good news. Investing in an EIS qualifies you for tax relief equal to 30% of the investment. So investing £100,000 gets you a further £30,000. So from sale proceeds of £200,000 you will end up with £130,000 from the transaction (200,000 - 100,000 + 30,000 = 130,000). You will also have an EIS worth £100k.  A grand total of £230,000. Don’t forget though that the capital gain is only deferred until the EIS is sold. 

    If you just went the conventional way you’d end up with £172,000 having paid £28,000 CGT. 

    There is a caveat. EIS schemes can be risky investments so this needs to be factored in before going down this route.





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    Can you confirm that there is no min investment to qualify for EIS?

    Secondly - in your calcs above you assume the subject is a high tax rate payer?

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    There is no minimum investment. My example is for higher rate tax payers hence using 28% as the CGT rate.
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    Hi YoungJoe, I know of this option and feel it was eloquently explained. Have you invested in these yourself? Personally I have invested very small amounts in start-up companies, with most going bust (expected)and a couple having gone on to do very well - but I still have no exit-route 5 years on. Not for the faint-hearted I'd suggest!

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    I’m still a basic rate taxpayer so have no need to mitigate s24 yet. I have very limited knowledge of EIS but feel it would probably suit my risk profile. I’m an adventurous so and so and feel the tax benefits are very attractive. Not having to pay CGT and then getting a 30% tax break on top gives a lot of scope to invest more money in property than the conventional approach. Using leverage I think would then reduce the risk considerably of the EIS underperforming.
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    Hi. EIS sounds an interesting option to me. Is it possible to set one up oneself?

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