Now that January is over it’s a good time to think about tax planning and benefit protection strategies for your clients. Those who are looking to sell their business need to plan to minimise CGT, and there is a new way to do this using EIS. Clients with young children want to protect their child benefit so need advice on how to keep their net income below the relevant thresholds for 2014/15. Finally we review the new features to watch out for in the 2015/16 PAYE codes.
Until recently individuals who wanted to minimise their exposure to CGT on the sale of a business had to choose between paying 10% CGT by claiming entrepreneurs’ relief (ER), or to defer the gain using the Enterprise Investment Scheme (EIS) or the new Social Investment Tax Relief (SITR).
The gain subject to the ER claim can’t be deferred, as it has already been taxed. When the gain is deferred by investing in shares issued under EIS, or shares or debt issued under SITR, no CGT is payable immediately. But that gain becomes subject to CGT when the EIS or SITR investment is disposed of, or when the investment conditions are broken. At that stage it is normally too late to claim ER, and anyway a claim for ER would mean 10% CGT becomes payable retrospectively based on the date of the sale.
However, for investments in EIS or SITR made on after 3 December 2014 the individual can choose to defer a gain, and then claim ER when that investment is disposed of. Thus your client can defer a gain that qualifies for ER, and then take advantage of the 10% rate of CGT by claiming ER when the deferred gain falls back into charge.
Remember a gain can be deferred by investing in EIS/ SITR up to three years after the date the gain was made, or one year before that date. So even if your client has already made a large gain, it is not too late to use the EIS instead of ER.
This is also a useful mechanism for splitting a large gain into smaller gains that can be covered by the taxpayer’s annual exemption. The EIS shares can be disposed of in small tranches over a number of years, and at each disposal a relevant proportion of the deferred gain falls back into charge for CGT.
Do talk to one of our CGT experts if you would like further details on how this CGT planning works.
This is an
extract from our tax tips newsletter dated 5 February 2015. The newsletter
itself contained links to related source material for this story and the
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