Landlords who sold earlier ‘may still benefit from ...

Landlords who paid Capital Gains Tax at 28% - before the Chancellor reduced it to 24% in this month’s Budget - may still be able to claw back some funds.

This claim comes from Wealth Club, a consultancy which provide information to investors and high net worth individuals.

Wealth Club says the possibility exists because of generous reliefs associated with the Enterprise Investment Scheme.

As part of the budget earlier this month, the Chancellor announced that, from April 6 2024, CGT charged on residential property sales, other than your primary residence, would fall from 28% to 24%.

That move is designed to encourage housing transactions, free-up housing stock and potentially increase the overall tax take. But if you sold a house in the last 12 months you won’t qualify.

However, Wealth Club claims that sellers could still potentially qualify for the lower CGT rate if they take advantage of the little known CGT deferral benefits available through the Enterprise Investment Scheme, or EIS.

The scheme was set up by the UK government to support investment into smaller UK companies. To encourage investment it offers generous tax reliefs, including 30% income tax up front and CGT deferral.

Invest the gain from a CGT liable investment in an EIS qualifying investment and you defer the CGT charge until the EIS investment is realised. The rate of CGT charged is the prevailing rate at the time the EIS investment is realised.

Wealth Club says that the net effect is that buy to let investors who sold their house in 2023/24 (and potentially up to three years earlier) could potentially defer any CGT bill, and then pay it at the lower 24% rate - assuming no changes to the tax rate in the near future.

However, it says there are risks to consider.

Firstly the CGT rate you pay on exit is the prevailing rate at the time of exit. CGT rates do change, and it’s always possible a future government raises CGT again, perhaps to above 28%.

Secondly EIS investing is risky. You could get back substantially less you than you invested, but your CGT liability would remain unchanged. That’s a potentially dangerous mismatch if you don’t have other funds available to meet the CGT liability when it falls due.

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