EIS investment

[paul255]

I am about to make a £150k capital gain.
I have been looking at an EIS investment but it looks like a sure fire way of losing £150k ???
Is there any better way of avoiding Capital Gains tax.

[Degsy67]

May depend on the origin of your capital gain. Is your name Angela or Nadhim? The source and scale can make a difference. If it’s a very small amount from a property (eg, £1,500 or so) then potentially get a bit confused, fill in your paperwork incorrectly and hope that you can avoid the newspapers finding out for over 7 years in which case you’re probably in the clear. If it’s a very large amount from shares (eg, £5m) then focus on getting yourself into a position of power (maybe the chairman of a political party or, if you’re really ambitious, Chancellor of the Exchequer), try to avoid press scrutiny and if you fail then simply do a deal with HMRC.

But seriously, the source of the income may make a difference in terms of property vs non-property. Marital status may make a difference if the asset can be gifted prior to disposal to take advantage of more than one capital gains allowance. Opportunities to put the asset inside a limited company may also be worth looking into so that different tax treatments could be used.

Degsy

[genou]

You've posted this on Retirement Investing. Is this a business / business asset that you are selling ?

[dealtn]

But seriously, the source of the income may make a difference ...

But seriously, if you can't differentiate the difference between income and capital and the different tax treatments I don't think you are in a position to offer advice.

[Degsy67]

But seriously, the source of the income may make a difference ...

But seriously, if you can't differentiate the difference between income and capital and the different tax treatments I don't think you are in a position to offer advice.

Fair point. For ‘source of the income’ read ‘source of the capital gain’. Mea culpa.

dealtn, I was waiting for your helpful additional insight for the OP but nothing subsequently arrived so let me follow up with my own inability to offer advice…

The source of the CAPITAL GAIN is important as various allowances apply to the CGT calculation so the OP should take full advantage of these allowances to reduce the CGT. It’s also important to understand if the gain has already been realised to understand if any CGT reduction opportunities can be used or not. It’s important to note that the OP said he is about to make the capital gain so I assume the gain is as yet unrealised so some options may still be available, especially if this is a gain realised from the sale of a property as opposed to other assets as different rules and rates apply.

If this is sale of a rental property by a DIY landlord with a small property portfolio then I’m afraid options are limited. You need to realise that the game has changed. The great unwashed were never meant to make millions from property assets. That’s the preserve of the asset rich 1% and non-doms. The natural eventual consequence was a change to tax rules and CGT allowances to take huge amounts of your CAPITAL GAINS away as tax to pay for hospitals and schools frequented by the type of person who made the gains (the top 1% don’t use our hospitals and schools so they don’t want to pay for them). EIS is an opportunity for you to defer the CGT payment by making a higher risk investment with the money which is owed to HMRC. This is a scheme for people who want to feel like they are legitimately dodging a tax payment by taking higher risk. It was never designed for the great unwashed as a legitimate scheme to enable them to keep more of their hard earned savings.

If you use EIS then you need to accept an increased level of investment risk. If you don’t accept the higher risk then you need to accept that you were never meant to get rich from property investment and to hand over the tax.

My name is Ben Elton (or Gary Stevenson). Good night!

[paul255]

Thanks Degsy

You have summarised my situation very neatly.
It is £200 capital gain on the imminent sale of a BTL property which I will have to pay £50k to HMRC (approx)
However I do not wish to hand over the £50k and want you to enlighten me how I can avoid doing this.
I know the usual stuff i.e. allowance - £3k , allowable expenses (I will still have to pay the solicitor and estate agents ), gift it to partner (no chance), offset against losses (none) , PPR relief (none) etc
I was hoping you were going to say EIS is a great scheme and I would not necessarily lose the £200k if I invested in it.
I cannot afford to lose the £200k - £50k
I am not sure what this has to do with Ben Elton.

Thanks

If this is sale of a rental property by a DIY landlord with a small property portfolio then I’m afraid options are limited. You need to realise that the game has changed. The great unwashed were never meant to make millions from property assets. That’s the preserve of the asset rich 1% and non-doms. The natural eventual consequence was a change to tax rules and CGT allowances to take huge amounts of your CAPITAL GAINS away as tax to pay for hospitals and schools frequented by the type of person who made the gains (the top 1% don’t use our hospitals and schools so they don’t want to pay for them). EIS is an opportunity for you to defer the CGT payment by making a higher risk investment with the money which is owed to HMRC. This is a scheme for people who want to feel like they are legitimately dodging a tax payment by taking higher risk. It was never designed for the great unwashed as a legitimate scheme to enable them to keep more of their hard earned savings.

If you use EIS then you need to accept an increased level of investment risk. If you don’t accept the higher risk then you need to accept that you were never meant to get rich from property investment and to hand over the tax.

[hiriskpaul]

I have looked at EIS several times and have never liked what I have found. The potential returns, risks, costs and complexity have never attracted me even with the CGT deferment. Just take the bullet and pay the tax would be my advice.

A possibility, depending on your situation, is to try to reduce your income this year so you pay as little CGT as possible at the higher rate. Stop drawing from a SIPP for example. Another one is to try to crystallise losses this year. eg are there investments sitting at a loss that you could rotate through an ISA?

[paul255]

Thanks HIriskpaul

This is the reply I was hoping to get.
Stay away from EIS

[SteveJ]

If you are close to, or over 55 years old, is it possible and of benefit to make a pension contribution to bring the amount that CGT will be assessed on below the threshold for higher rate tax? Even if it is not possible to get full income tax relief on this contribution it would have the benefit of reducing CGT from 24% to 18%?