Buy to let and second home owners putting off selling their properties because of capital gains can consider the benefits of tax breaks under the Seed Enterprise Investment Scheme (SEIS).
In Budget 2013, Chancellor George Osborne extended SEIS tax benefits for a further tax year, although he halved the capital gains tax exemption from April 6, 2013.
This still leaves a significant CGT break for property investors.
Under SEIS, the Chancellor will exempt 50% of any capital gain raised from assets sold during the tax year that are reinvested in a start-up company.
On top of that, each joint owner has their annual exempt CGT allowance of £10,900 – so a property investor can make a gain of £24,900 without paying any tax providing the profits go in to a SEIS company for at least three years.
Tax breaks
That comprises the £10,900 CGT exempt allowance plus 50% CGT tax relief against a SEIS investment of £100,000.
Then, if the SEIS company shares are sold at a gain, the gain is also CGT-free. If the company fails, the loss can be set off against income tax under some circumstances.
Other tax breaks are the SEIS investment also attracts a 50% income tax rebate against tax due in the first year of the SEIS investment and the investment is outside of Inheritance Tax if the shares are owned for at least two years.
Of course, the same CGT advantages apply to investors selling other assets, like shares.
SEIS investment is worth considering for property owners receiving a poor yield or wanting to sell a property that needs refurbishment – providing they can wait at least three years for the cash.
SEIS is aimed at raising investment for new companies that cannot raise money from the banks because of the lack of trading history.
Risk assessment
The investment is likely to be risky due to the start-up nature of the businesses, so detailed due diligence is a must. SEIS comes with a warning – if you cannot afford to lose the cash, then do not invest even though the safeguards built-in by the government reduce the risk.
SEIS rules allow a maximum £100,000 investment in a tax year and a maximum of £150,000 in a company.
Investors can only hold 30% of the company’s share capital and the company must have a qualifying trade – a restricted list of businesses mainly covering fresh ideas including technology, media and pharmaceutical projects.
The current SEIS CGT tax breaks run from April 6, 2013 until April 5, 2014, and will end unless renewed in the next budget.
