Share this content
4

CGT deferral on residential property sale

CGT deferral on residential property sale using EIS Shares

Didn't find your answer?

We have a client asking about deferring his gain on the sale of a residential property by investing in EIS shares with the view paying 10%/20% tax instead of 28% and in the future making use of his CGT allowance by disposing of the shares over several years (assuming the EIS companies perform and he is able to sell his shares). From my research, whilst the planning is often promoted, we appear to be getting a mixed response from the techical departments of EIS providers as some agree with planning whilst others are hesitant to acknowledge the  reduced tax rate as they feel that HMRC will deem this  not in the spirit of the legislation as it is intended as they will want the CGT rate on residential property to be 28% to penalise 2nd home owners and therefore it will almost certainly be challenged and retrospectively changed. The client is looking for confirmation from me that it will work but difficult to state this with conflicting views on the transaction. I was wondering if other advisers are coming across this much with the 28% CGT rate and how they are dealing with it.

Replies (4)

Please login or register to join the discussion.

avatar
By Ian McTernan CTA
20th Jun 2018 12:19

It doesn't matter what asset was sold, or what rate of gain applies to it.. It's a deferral relief until the EIS shares are held long enough at which point the gain disappears as the shares can be sold tax free.

Disposing of the shares to utilise his CGT exemption? Good luck finding investments where you can do that - or do you not understand how EIS works?

Of course, the main problem with this sort of 'planning' is actually picking companies that give you a return on the investment!

Thanks (1)
Replying to Ian McTernan CTA:
avatar
By Wanderer
20th Jun 2018 14:45

Ian McTernan CTA wrote:

It doesn't matter what asset was sold, or what rate of gain applies to it.. It's a deferral relief until the EIS shares are held long enough at which point the gain disappears as the shares can be sold tax free.

Surely it is the EIS gain that disappears & the original deferred gain is brought into tax when the EIS shares are disposed of?
Thanks (0)
avatar
By Avant-Garde54
20th Jun 2018 14:41

Thanks for your response and I am aware how EIS relief works. I don't understand your comment that the gain disappears i thought the whole point is that it is deferred. ie..if a higher rate taxpayer disposes of his residential rental property in 2016/2017 realising a gain of £500,000. After the annual exemption his gain would be 488,900 and tax at 28% would be £136,892. However if he invests £488,900 in an EIS shares which he later sells for £488,900 the deferred gain would be taxed at 20% (£97,780), a saving of £39,112 as opposed to disappearing.

This is the way it is detailed in various examples by providers and tax articles hence my question if other accountants had clients deferring residential gains in the same way.

Thanks (0)
Replying to Avant-Garde54:
avatar
By Wanderer
20th Jun 2018 15:19

Avant-Garde54 wrote:

...deferred gain would be taxed at 20% ....

Is that correct though? Wouldn't the deferred gain be taxed at residential property rates?
Inconclusive discussion here:-
https://www.accountingweb.co.uk/tax/personal-tax/sheltering-property-gai...

I know some commentators suggest it works but probably high risk to confirm the 'standard' rates of CGT apply. It's early days for this scenario to pan out.

Higher risk is of course that investor gets anything back at all from their EIS investment!

Thanks (0)
Share this content

Related posts