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Landlord tax tip that slashes CGT bills
29 April 2014
SEIS offers massive income tax and capital gains tax breaks for investors backing start-up companies.
Introduced by Chancellor George Osborne in Budget 2012, many landlords are unaware of the tax advantages offered by the scheme providing they follow strict investment rules.
The drawback is up to £100,000 invested in a tax year in SEIS is tied up for three years to qualify for the tax breaks.
But providing that rules are followed, property investors can pick up:
• A 50% reduction on income tax paid in the year up to the value of their investment – that’s a discount of £50,000 on income tax paid on a full investment of £100,000
• A 50% capital gains tax exemption on tax due on the disposal of assets to raise money directly for a SEIS investment
• Tax-free growth on the value of the equity stake bought in a SEIS business
• Loss relief against other income if the start-up company should fail during the three-year SEIS period
For landlords selling a home with a capital gains tax bill of £100,000 this means the payment is cut in half providing the money is invested in SEIS.
The strategy is worth considering by landlords without the funds to settle a capital gains tax bill on the sale of a rental property with a high mortgage. Investing in a SEIS reduces the capital gains liability to within the funds from the sale and means a landlord does not have to raise more cash to pay off the tax.
Investments can be direct investments into a company pre-approved by HMRC or by a number of specialist investment funds, which spread the investment risk across a number of companies and business sectors.
The SEIS offer covers buy to let homes, furnished holiday lets, houses in multiple occupation (HMOs), uncommercial lets, land and commercial property.
The CGT exemption also extends to other investments, like shares.
Find out more about SEIS on the HMRC web site