On the incorporation of a sole trade or partnership to a company, the transfer of assets (e.g. land/property, goodwill) may give rise to a chargeable gain on which capital gains tax may be charged.

Where all the assets of the business are transferred to the company in exchange for shares, then Incorporation Relief may be available to reduce the capital gain to £nil.

The effect of the relief is to “roll-over” the gain on incorporation into the base cost of the shares, effectively deferring the gain until the shares are sold at a later date.

In some circumstances it may be beneficial for the taxpayer to sell the assets to the company in part for a loan and in part for shares, however this will in turn restrict Incorporation Relief available.

With this in mind, expert advice should be taken prior to incorporation to ensure that is structured in the most tax efficient manner.

Principle Private Residence (“PPR”) relief is one of the more widely known tax reliefs, providing relief from capital gains tax on the sale of your home.

The level of PPR relief available is calculated by reference to the “period of ownership” and the “period of occupation” on a pro rata basis. With this in mind, where an individual has lived in their home as their main residence throughout their period of ownership, a liability to capital gains tax should not arise.

Complications arise where there are periods where the property was not occupied by the owner (e.g. because you left to work abroad or move in with a partner), or where you are residing in more than one property.

Therefore, where there is any doubt over whether PPR relief will be available in full, expert advice should be taken.

Where PPR relief is available on the sale of your home and you have let out the property to tenants, then additional relief may be available under Lettings Relief.

Up to 5 April 2020, Lettings Relief is available (up to a maximum of £40,000) where a property has been let as residential accommodation during a period of absence.

From 6 April 2020 onwards, Lettings Relief will be restricted to situations where the landlord is living in the same property as the tenant in shared occupation.

If you are a director of a company seeking to raise finance, or if you are interested in investing in shares, you should consider the valuable tax relief available under the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

EIS and SEIS were introduced to encourage individuals to invest in smaller, high-risk companies. They offer generous income tax and capital gains tax benefits, namely:

Income Tax

• EIS Shares – a reduction of income tax of up to 30% of the lower of the amount subscribed or £1mllion (i.e. maximum relief of £300,000.
• SEIS Shares – a reduction of income tax of up to 50% of the lower of the amount subscribed and £100,000 (i.e. maximum relief of £50,000).

Capital Gains Tax

• No capital gains tax on the sale of EIS & SEIS shares, provided that the investor owned the shares for at least 3 years prior to sale and income tax relief was claimed.
• EIS reinvestment relief, which allows an individual to defer the capital gains on sales of other assets if they reinvest the proceeds in qualifying EIS shares.
• SEIS reinvestment relief, which allows an individual to exempt a portion the capital gains on sales of other assets if they reinvest the proceeds in qualifying SEIS shares.

EIS & SEIS: What’s the difference?

EIS and SEIS are both aimed towards unquoted companies looking to seek investment to further their trade.

The conditions for qualifying for EIS and SEIS are broadly similar, however as SEIS focuses on high-risk early-stage companies, the rules are more restrictive.  A brief summary of some of the conditions that must be met include:

How can we help?

There are strict conditions that apply to the company, the shares, and the investor(s) that must be met in order for EIS/SEIS to apply. We have assisted our clients by performing a detailed review of the rules and advising on whether they could qualify under EIS/SEIS.

Businesses looking to utilise EIS/SEIS for their company must send certain forms and information to HMRC to allow HMRC to certify that the company shares qualify for tax relief. We can help prepare the appropriate documents to put forward the best case for why a company will be eligible.

HMRC also offers advance assurance so that directors and investors can be certain that the company’s shares will qualify for EIS/SEIS before they are issued. We can also prepare these advance assurance claims to provide further comfort for clients.

EIS and SEIS investments carry financial risk and should only be undertaken after speaking with a qualified financial advisor.