The tax man is rumoured to have told Seed Enterprise Investment Scheme (SEIS) fund managers that capital gains tax (CGT) reinvestment relief will not continue after the end of this financial year.
So far, HM Revenue & Customs has made no official announcement. If the rumours are right, only capital gains in the current tax year ending on April 5, 2013 will qualify for CGT reinvestment relief.
A spokesman for SEIS provider Jenson Solutions said: “After some confusion over what is happening to CGT reinvestment relief we have had some clarification from HMRC on the issue.
“HMRC says that CGT reinvestment relief is not continuing after this financial year and only gains made before April 5, 2013 will qualify for relief.
“Carry-back is still available for income tax and CGT relief. Investors have time to invest in a SEIS compliant company or fund in 2013/14 by utilising a capital gain made in 2012/13.”
SEIS tax advice
The firm also suggests investors should plan for minimising the tax they pay now.
“Investors planning to put money in to a SEIS should act is now,” said the spokesman.
“Getting their investment under way now will reduce their self-assessment payments on account which is due on January 31 and on July 31.
“By acting now, the investor can utilise income tax relief early and use any, or just a part, of the unrealised capital gains made before April 6, 2013.”
A SEIS is one of the most tax-effective ways of helping start-ups get the funding they need to succeed. HMRC lays down strict for firms qualifying for investment, but a SEIS is a chance to cut tax and potentially make more money from investment profits.
CGT reinvestment relief
For example, if someone sold an asset last July for £200,000 and realised a chargeable gain of £80,000, they could make qualifying investments in shares under a SEIS for the same amount in this tax year before any exemptions are calculated.
If all HMRC SEIS conditions are met, then that £80,000 will not attract CGT. By using SEIS, an investor does not have to invest their £200,000 capital gain to benefit from the full exemption.
In another example, if someone sold an asset last July for £200,000 realising a chargeable gain of £80,000, but only invested £20,000 in a qualifying SEIS share investment, then only that amount would be exempt from CGT.
They would still be liable for CGT on a chargeable gain of £60,000 following the asset disposal, although the remaining balance is still eligible for other CGT reliefs.