Investors who may have handed over up to 40% of their profits in capital gains tax (CGT) on buy-to-let properties or shares during the past three years can claw a chunk of it back and benefit from the new, universal 18% CGT rates introduced in April, says Alice Ross in the FT.
Enterprise Investment Scheme (EIS) rules allow you to sell taxable assets, reinvest the proceeds in an EIS, and then defer capital gains tax until the EIS is sold. Crucially, this also applies to assets that are sold up to three years before an EIS investment is made. Provided that EIS investment is subsequently held for at least three years, the 40% tax originally paid by a higher-rate taxpayer on, say, buy-to-let properties, can be reclaimed in full with any subsequent gains on the EIS investments, usually shares, only being taxed at the new 18% rate.
However, since an EIS can only hold specified risky investments, such as shares in start-up firms, the potential savings you make by clawing back the tax relief need to be weighed up against the considerable investment risk – particularly at a time when the outlook for the global economy is somewhat shaky.