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How to slash CGT on selling investment property

19 August 2014

One way out of the capital gains tax cul-de-sac for property investors is the government’s incentive for small businesses – the Seed Enterprise Investment Scheme (SEIS).

Stored up capital gains tax in properties or houses in multiple occupation (HMO) in a climate of rising prices is only sending capital gains tax one way –up.

SEIS is a little-known opportunity for landlords and property investors to slash their capital gains liability by up to half.

At the same time, SEIS can make a big dent into income tax on rental profits.

What is SEIS?

SEIS is a tax incentive for investors in start-up businesses seeking cash that banks are no longer willing to lend.

SEIS tax incentives

SEIS investors buy shares in a start-up company which is pre-approved for the scheme by HM Revenue & Customs (HMRC). They may claim:

• A 50% income tax reduction on tax paid up to a maximum investment of £100,000 – so that’s £50,000 tax saving whether the investor is a basic, higher or top rate taxpayer.

• 50% of CGT due on assets sold to raise cash for direct investment into a SEIS are CGT exempt – so rental properties, holiday homes or second homes can all benefit from the tax break
• Any growth in the value of SEIS is CGT free

• If the investment fails, loss relief is available against other tax due
What’s the catch?

A SEIS project must run for 36 months to qualify for the tax breaks otherwise HMRC will reclaim the money

How the tax breaks work

An investor sells one or more rental properties in a tax year and owes £100,000 in CGT and £50,000 in income tax.

£100,000 from the sale is put into a SEIS.

The income tax bill is wiped out with the 50% income tax reduction (50% of the £100,000 investment), while 50% or £50,000 of the CGT bill is waived as well.

More about SEIS on the HMRC web site