Thanks to both legislative changes and the CGT deferral available down the EIS route, clients will only have to pay the new 18 per cent flat-rate on capital gains once they have completed the deferral period.
Gains which are not qualified for business taper relief are currently subject to an effective tax rate of 24 to 40 per cent, however, as outlined in the pre-Budget report in October 2007, this is set to change at the outset of the new tax year in April 2008.
For example, should a client have a £1m gain which has a CGT charge of 40 per cent (£400,000). CGT is deferred through an appropriate Enterprise Investment Scheme (EIS) product. On a subsequent sale of the EIS shares, by which time the new legislation is active, the gain would crystallise with a CGT bill of £180,000, a saving of up to £220,000. There is no limit on the amount of gain which may be deferred.
An EIS scheme must be held for a minimum of three years in order to be eligible for the CGT benefits.
Pre-X director John Blowers says: “IFAs should make the most of this as it provides a significant opportunity for their clients who have made a capital gain over the last three years and would like to pay significantly less tax.
“EIS allows reduction in this capital gain by over half in certain circumstances. Plus, clients can gain access to an exciting investment opportunity by investing in an EIS qualifying company – or more prudently – a managed EIS Fund.”