Using EIS to defer Capital Gains from the sale of other assets

The following fictional case study is intended for financial advisers only. Vala Capital is unable to provide any form of financial advice. Taxation depends on individual circumstances and tax rules are subject to change.

Case study: EIS Capital Gains Tax deferral

Sunil is a higher rate taxpayer who recently incurred an £500,000 capital gain on the sale of a painting within his personal art collection. His annual CGT allowance has already been used on other asset disposals and, as such, he is now facing a capital gains tax liability of £100,000. 

 

He decides to invest £200,000 in an EIS portfolio, offering him the ability to subscribe for eligible shares in a range of EIS qualifying companies. This allows Sunil to defer paying approximately £20,000 of the overall capital gain tax liability, and he can claim up to £30,000 in income tax relief to offset against his income tax bill.

 

So long as Sunil holds these shares for a minimum of three years, he is able to benefit from any capital growth in his EIS portfolio being tax-free, whilst the amount he initially invested will be outside of his estate for inheritance tax purposes after two years.

 

The initial gains on Sunil’s art sale may be deferred until his EIS qualifying shares are disposed of or, if earlier, when other events trigger withdrawal of the deferral relief. Once the shares in the EIS portfolio companies have been sold, this will trigger a “chargeable event” in which the deferred gains will crystallise once more. Sunil will either need to pay the tax at the prevailing rate due on this capital gain (having utilised any tax-free allowances), or has the opportunity to ‘roll over’ the gain into a new EIS portfolio to further defer the capital gain.

               

In Sunil’s case, he is liable to CGT at the rate of 20%, which is the higher rate of CGT on the sale of personal property.

Introducing Vala Capital

​​Vala EIS Portfolio

Invest in a portfolio of EIS-qualifying companies, from a range of different industries. All our investments are selected then closely mentored by entrepreneurs with decades of experience starting, growing and selling businesses.

Find out more about EIS

If you have clients who might benefit from Capital Gains Tax deferral, or other EIS tax reliefs, you might find our free EIS Guide helpful. Access it using the button below.

Vala Capital Ltd (FCA number 827386) is an appointed representative of Sapphire Capital Partners LLP, which is authorised and regulated by the Financial Conduct Authority with firm reference number 565716. Our address is Audley House, 12-12a Margaret Street, London, W1W 8RH. 

Investing in start-ups and early stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution. It should be done only as part of a diversified portfolio. The Vala EIS Portfolio is targeted exclusively at investors who understand the risks of investing in early stage businesses and can make their own investment decisions. Any pitches for investment are not offers to the public.

Investments made in companies or EIS funds listed on this website platform may not be covered by the Financial Services Compensation Scheme (FSCS). For more details please contact us or refer to their website, www.fscs.org.uk.
 

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