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Amendments to capital gains tax relief: what you need to know

8 Nov

If you’re a company shareholder or director, you’re probably already aware of the recent amendments to the Finance Bill 2016-2017 – but they might have left you feeling a little confused. The amendments extended the scope of Investors’ Relief – but some of the changes are difficult to differentiate from the pre-existing Entrepreneurs’ Relief – at a first glance, anyway.

Entrepreneurs’ Relief also allows tax payers to pay tax on capital gains at 10%, rather than 20% – so what’s the difference between the two reliefs? What about the Enterprise Investment Scheme (EIS) Relief and the Seed Enterprise Investment Scheme (SEIS) Relief? How can you evaluate which relief is appropriate for you? Dua & Co. are experienced chartered accountants in Watford and London, and we can help with all your tax needs, including by helping you to understand and apply for SEIS/EIS relief and structure investments in unquoted shares – so here’s our introduction to the similarities and differences between these complex schemes.

Investors’ Relief Vs Entrepreneurs’ Relief

As we’ve already mentioned, both of the aforementioned reliefs reduce CGT to 10% for tax payers – but the similarities don’t stop there. Both have no maximum investment limit per year, and both only apply to the first £10 million lifetime gains – though, naturally, Investors’ Relief will be of great interest to those who have already exhausted their allowance for Entrepreneurs’ Relief. And neither provide income tax relief – but the similarities largely stop there.

Company directors are not allowed to benefit from Investors’ Relief on subscription, though they may later become and unpaid director – there are no such limitations of Entrepreneurs’ Relief. Likewise, to qualify for Investors’ Relief you cannot be a company employee, though you may become one 180 days later, and you must hold your investments for three years before you can claim this relief – for Entrepreneurs’ Relief, it’s just 12 months, and you may be an employee at time of subscription. And, crucially, Investors’ Relief is only available for companies who have no quoted shares, and the shares must have been issued for commercial purposes. The shares must have been subscribed for by the investor or their spouse, and must be fully paid up at time of subscription – no such restrictions apply for Entrepreneurs’ Relief.

EIS and SEIS Relief

So in some ways, Investors’ Relief may seem to have more conditions than Entrepreneurs’ Relief – and many of these conditions are similar to EIS relief and SEIS relief, which were also designed for non-working investors. But EIS and SEIS have two key benefits – they are completely exempt for capital gains tax, and they offer income tax relief on the investment amount, of 50%(SEIS) and 30% (EIS). They also offer capital gains tax reinvestment relief, and company directors are eligible – but, as you might expect with such benefits, they do have additional restrictions – but example, they have a set maximum investment amount per year of £100,000 for SEIS and £1 million for EIS. There are also specific restrictions on the number of employees a company may employ, trading and non-trading activities and the amount that can be raised by EIS and SEIS investments, etc, and the shares cannot have certain preferred rights – though it’s worth bearing in mind that many of these restrictions are no lomger applicable after three years.

As you can see, the new legislation means shareholders have more options about which relief to claim than before, but also that the decision may be more complex, with more ins and outs to weigh up – and Dua & Co. are here to help. We’ve over 20 years’ experience in understanding the intricacies of tax laws for our clients, and we can take the burden of weighing up your options off your chest, help you with EIS/SEIS applications and structuring your investments, and take care of all your tax needs for you. So if you’re looking for accountants in Watford and London, get in touch today and we’ll be happy to help –leaving you free to focus on the things that matter to you most.

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