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Capital Gains Tax (CGT) reinvestment relief, at 50% of the ordinary CGT rate, is available where assets are sold and all or part of the gain is invested in shares that qualify for SEIS.
Reinvestment relief is available for half of the CGT on gains reinvested within the SEIS. In 2012-13 the reinvestment relief was unrestricted but the restriction to relief on half of the gain was introduced from the 2013-14 tax year.
The maximum gain to be relieved is capped at £100,000 and the relief will be withdrawn if the SEIS relief is ultimately withdrawn.
Qualifying Conditions for Relief
For example, anyone with capital gains of £100,000 in the current tax year can reduce their tax bill by 50% by reinvesting these gains via the SEIS. The investment must be made in the same tax year as the gain was made. Otherwise, the relief can be effectively extended to the following tax year if the investor elects to carry back the investment to the previous year.
Where the qualifying conditions for the SEIS are met, there is a 100% exemption from CGT on the sale of shares sold more than three years after the date on which they were issued. In addition, if the SEIS investment fails to make a profit then loss relief will be available. The loss relief can be set against the taxpayers’ other income or capital gains.
If the shares were sold before the three years condition is met they may still qualify for a reduced 10% rate of CGT using entrepreneurs’ relief.
It is important to remember the inherent risks in making an SEIS investment, however, these risks are heavily reduced by the availability of income tax relief and loss relief. It is important to remember that the reliefs are only available where the taxpayer has sufficient liability against which to set it.
Worked Example
In 2016-17, a higher rate taxpayer called John sells an asset and makes a profit (before exemption) of £100,000. In the same tax year, John reinvests all this £100,000 profit in qualifying SEIS shares. John will be able to claim a reduction of £50,000 (50% of the amount invested in SEIS) on the chargeable gain relating to the sale of the asset.
This would save John up to 14% tax i.e. 50% of the applicable Capital Gains Tax rate of 28% since he is a higher rate taxpayer. Since April 2016, CGT on the disposal of chargeable assets has been reduced to 10% (from 18%) on disposals that form part of the basic rate band and to 20% (from 28%) on disposals that form part of the higher rate band. John could also benefit from the CGT annual exemption, currently £11,100.
If you have had any significant gains in this tax-year (or last tax year), please contact us for advice on how to reinvest these gains and ensure optimum relief from CGT.
