View more on these topics

Turning over a new relief

I have recently sold a second property in Central London for a substantial profit. I am looking for tax-saving ideas and also longer-term investments that are fairly speculative to take advantage of weak markets. If I buy another property, will I get rollover relief on the funds? Also, can I make a single-premium pension payment as I am behind on my pension provision?

First, let me deal with the belief that investment properties qualify for rollover relief – they don&#39t. The Inland Revenue views private property transactions for profit, assuming they do not involve a main residence, as an “adventure in the nature of trade”. As such, they do not allow you to defer the capital gains tax due on the sale in the way some business assets do.

There are some exceptions to this. If your property was formerly your main residence and is being sold because you have recently married, then you may escape CGT, although the sale must be completed within two years.

If this is not the case, then there are other options. One of these, as you correctly identified, is a pension. By investing some of the proceeds in a pension, you will not avoid having to pay CGT but earning income tax relief may take out some of the sting.

You can, of course, use the proceeds of the sale to make a single-premium pension contribution. The amount you can invest will depend on your age and will be a set percentage of your net relevant earnings for that tax year.

You can still take advantage of carryback on a single-premium pension although you must nominate that you are carrying back at the time you make the contribution (this has changed slightly from previously).

Carrying back will allow you to use up your pension capacity from a previous tax year as well as the current tax year. If both years are maximised and you still have capital available, then you can take advantage of the basis year rules to continue to make contributions in future tax years up to your percentage limit based on your net relevant earnings for the basis year selected.

After you have exhausted pensions or if you are looking at other ways of managing the capital gains tax liability, then you can look at venture capital trusts and enterprise investment schemes.

EIS deferral relief replaced reinvestment relief from April 6, 1998. You need to acquire a qualifying EIS within a period of one year before and extending three years after the disposal of the property that has created the gain. The money is invested in a small unquoted company, so you must bear in mind the risks associated with that type of investment, and the minimum timescale is three years.

You should also bear in mind that some schemes use the tax relief to hide substantial charges. If you are happy on all these counts, then an EIS offers deferral of CGT with potential income tax relief up to 20 per cent on top.

The limit for investment into an EIS is £150,000. They are slightly more flexible, and therefore more risky, than venture capital trusts.

A VCT is a quoted company investing at least 70 per cent in qualifying unquoted companies, which can include companies listed on the Alternative Investment Market. A VCT offers 20 per cent income tax relief, deferral of a capital gain and tax-free distributions.

There is no CGT on gains made from the VCT shares and, as a collective, up to 30 per cent may be invested in non-qualifying stocks such as blue-chip equities. This gives them appeal to those seeking tax savings and exposure to the markets in a more speculative way.

The disadvantages include no business property relief from inheritance tax, higher than average risk and a lack of a clearly defined or guaranteed exit strategy.

The inheritance tax issue is quite significant as business property relief may have applied had you invested directly into the underlying companies. Clearly, this needs to be weighed up carefully. There is an annual limit of £100,000 a year on VCTs but, by careful planning, it is possible to invest £300,000 from a single gain by straddling three tax years.

Clearly, different aspects of each of the above may be more or less suitable to your particular circumstances but I am sure they have given you food for thought.


Transact adds offshore bond to range

Wrap provider Transact is adding an offshore bond facility to its wealth management wrapper range which already covers Peps, Isas and pensions. The offshore bond wrap gives investors the benefits of the Isle of Man tax regime for life products. Annual charges are 0.2 per cent to 0.6 per cent, depending on portfolio size.

On golden bond

Tax planning is – or should be – enjoying a time of higher than usual interest and, hopefully, demand. The reason why has been well explained in this column in past weeks but here it is again for good measure. In a time when investment markets are difficult, interest levels in increasing the bottom line […]

Field&#39s scheme wind-up bill is blocked

Labour backbencher Frank Field private member&#39s bill to amend the priority order on pension scheme wind-ups has been blocked by the Government. Field&#39s bill would have given increased protection to members who had not yet retired by basing entitlement on numbers of years service rather than giving priority to retired members.

Portman and Sun Bank merge teams

Portman Building Society and its specialist lending subsidiary Sun Bank are combining their intermediary sales teams, although Sun Bank will remain a separate operation with its own staff, branding and product range. The new 12-strong team will be headed up by associate director, group intermediary sales Paul Howard. He says this means IFAs will only […]

Where next for the price of oil?

Having stabilised at around $65 a barrel, many investors are questioning if the price of oil will rise, and when. Richard Hulf provides his view. Richard Hulf, manager of the Artemis Global Energy Fund, sets out his thoughts about how the oil price may move through the next six months. At the start of the […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm