Property investors looking to sell up but worried about the capital gains tax implications can consider the Seed Enterprise Investment Scheme (SEIS).
Capital gains tax (CGT) woes are a common worry for property investors who have held a buy to let or house in multiple occupation (HMO) for some years.
But SEIS is an option for slashing the amount of CGT a property investor pays – providing they follow the rules.
Not only does SEIS help reduce CGT, but investing in a start-up company can also cut income tax due of rental profits as well.
What is SEIS?
SEIS is a government-backed investment that offers generous tax breaks for investing in an approved start-up company
What are the tax breaks?
SEIS investors can claim:
- A 50% income tax reduction on tax paid up to a maximum investment of £100,000 – so that’s a maximum £50,000 less tax paid whether the investors is a basic, higher or top rate taxpayer.
- The important relief for property investors is 50% of CGT due on assets sold to raise cash for direct investment into a SEIS are CGT exempt.
- Any share appreciation within a SEIS is CGT free
- If the investment fails, loss relief is available against other tax due
How long does the money have to stay in a SEIS?
To qualify for the tax breaks, the money must be kept in a SEIS company for three years
How do the numbers crunch?
An investor sells one or more rental properties in a tax year and owes £100,000 in CGT and £50,000 in income tax.
The money is put into a SEIS.
The income tax bill is wiped out with the 50% income tax reduction, while 50% or £50,000 of the CGT bill is exempt from tax as well.
Does the money have to go into a single investment?
No. Several investment managers run SEIS funds that spread the risk of the investment over several start-up companies. The same tax breaks apply to fund investments as well as single company SEIS.
Can investors save more than 50% CGT?
No. But combining a SEIS with Community Investment Tax Relief (CITR), the Enterprise Investment Scheme (EIS) or Venture Capital Trusts (VCT) can reduce income tax bills even further.
Find out more about SEIS
HM Revenue & Customs (HMRC) has more details of how SEIS works on their web site
