MONTHLY FOCUS: CAPITAL GAINS TAX SAVINGS WITH SHARES

Capital gains tax, or CGT for short, applies to gains made on the disposal of chargeable assets. There are a number of tax reliefs available that you can take advantage of when planning your investments. In this Monthly Focus, we look at some of those that apply to shares.

CGT: OVERVIEW

What are capital gains?

When you sell an asset, for example, a house, valuable piece of furniture or shares in a business, and receive more than you paid for it, the profit is a capital gain. Where in a tax year your gains less any losses are greater than the “annual exempt amount” you are liable to capital gains tax (CGT). There are different rates of CGT which can apply depending on the type of asset on which you made a gain and how much income you received in the same tax year.

Does CGT apply to all types of asset?

Sales of some items don’t count for CGT and for others there are special reliefs. For example, you are probably aware that gains made from selling your home are not subject to CGT, providing certain conditions are met.

There are a number of other types of asset which are either outside the scope of CGT or to which special exemptions and reliefs apply.

The most common are:

• cars for private use
• physical movable property worth no more than £6,000, e.g. antique furniture, art, etc. (partial tax relief applies for assets of value up to £15,000)
• items which at the time you acquire them you don’t expect to last for 50 years or more
• certain investments which the government designates as exempt, such as ISAs and British Government Stock; and
• machinery or equipment of any type, such as watches and clocks.

 What are capital losses?

If, for example, you sell shares for less than you paid for them, the difference in value is a capital loss. Losses reduce your gains in a certain order:

• they must first be used to set against gains made in the same year
• to the extent they exceed gains of that year they are carried forward and used to reduce gains of later years
• losses for a year must be used to reduce gains of the same year before losses are brought forward
• losses brought forward are not used to reduce gains unless they exceed the annual exempt amount.

Example

In 2022/23 Harry made gains of £20,300 and losses of £2,000. He also has losses brought forward of £10,000. His net gains for the year are therefore £18,300, which after deducting the annual exempt amount of £12,300 leaves £6,000 taxable gains. However, £6,000 of the brought forward losses reduce the taxable amount to nil.

Note that losses brought forward must be used as indicated in the example above. Harry cannot choose not to use the losses, say, because it would be better for him to use them in a later year. Losses can be carried forward indefinitely only if you have notified (declared) them to HMRC within the time allowed, that is, four years from the end of the tax year in which they occurred. You can’t claim a capital loss on assets which are exempt or outside the scope of CGT. Broadly, this applies to the same assets listed above as not being chargeable to CGT, for example, a loss made on the sale of your car.

When does a capital gain or loss occur?

A capital gain or loss arises on the date you agree to sell an asset, usually that is the contract date, and not on the date of completion, unless that is also the date you agree to sell. It can be to your advantage to delay signing the contract for the sale of your business. It’s the date contracts are signed that counts as the point at which a capital gain arises. For example, if you signed a sale contract on 31 March 2023, and the deal completed in May 2023, any gain from the sale is taxable for 2022/23 and not 2023/24.

Example

In March 2024 Roberto decides to sell all the shares he owns in Acom PLC. If he agrees the sale with the broker before 6 April 2024, any resulting gain is taxable in 2023/24 and any CGT payable by 31 January 2025. But by delaying agreement to sell until 6 April 2024 or later the CGT bill is delayed until 31 January 2026.

How do I work out the tax due?

For each tax year, part of any gain an individual makes is tax free. This is known as the annual exemption amount. For 2021/22 and 2022/23 the annual exempt amount was £12,300. In the 2023 Budget the Chancellor announced that the exempt amounts for 2023/24 and 2024/25 would be reduced to £6,000 and £3,000 respectively. The exempt amount for gains made by most types of trust is half that for individuals. Companies and other corporate organisations are not entitled to an annual exemption.

To work out the CGT due for a tax year, add together all the capital gains, deduct any specific exemptions, e.g. private residence relief, then deduct any capital losses made in the same year and your annual exemption. The resulting figure is your taxable gain for the year. However, if you made capital losses in any earlier year that were not deducted from gains made in the same year, these must be deducted to arrive at the taxable gain.

What are the different CGT rates and when do they apply?

The main CGT rates are:

• 10% for the part of the gain which when added to your income falls within the basic rate band
• 20% for the part of the gain which when added to your income falls above the basic rate band
• 10% if BADR applies
• 18% for gains after deducting exemptions and reliefs, made from the sale of residential property (dwellings) where the main 10% rate would otherwise apply
• 28% for gains after deducting exemptions and reliefs, made from the sale of residential property (dwellings) where the main 20% rate would otherwise apply.

Working out the rate of tax payable is complicated by the need to first calculate how much of each income tax rate band has been applied against your earnings, and thus how much is left to apply to your capital gains.

Changes from 6 April 2023

As of May 2023 changes are going through the usual steps before being made law. Most of these changes will have retrospective effect and apply to transactions made on or after 6 April 2023.

Separating couples

Where spouses or civil partners permanently separate the “no-gain no loss” rule will apply to the transfer of assets between themselves for the tax year in which they separate and the following three tax years (the three-year period). The effect of this is the spouse or civil partner transferring an asset to the other is treated they had sold it at a price equal the the cost of the asset for CGT purposes.

Example

Harrold and Hilda were married until they permanently separated on 1 August 2021. As part of their financial settlement Hilda transfers part of her share portfolio to Harold in October 2024. The current aggregate value of the shares is £120,000 and the aggregate cost of the shares to Hilda is £70,000. Each shareholding is deemed to have been sold to Harry at its cost price. Because the transfer occurred within three years from the end of the tax year in which separation occurred Hilda is treated as making neither a capital gain nor a loss on the transfer. Harry is treated as having paid £70,000 for the shares.

Had Hilda transferred the shares before 6 April 2023 (when the new rule applies from) or after 5 April 2025 (when the three-year period ends), she would be required to calculate if she had made a capital gain or loss as if she had sold the shares at their market value at the time they were transferred to Harold.

Note that where a separated spouse or partner sells assets to the other spouse or partner within the three-year period the sale price is ignored and the no gain, no loss rules apply to the transaction.

Partnership property

For claims for PRR made on or after 6 April 2023, assets owned by LLPs and Scottish partnerships are deemed to be owned by the partners in the partnership rather than the partnership itself. This change corrects an unintentional restriction of PRR which prevented it applying to gains made by partners in LLPs and Scottish partnerships where their only or main residence was owned by the partnership. This change brings the CGT treatment into line with partnerships formed under English law.

If you need any more help take a look at our Accounting Services Pages

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INVESTORS’ RELIEF

What is the tax relief for investors?

A special CGT relief applies to investors who make gains from the sale or transfer of shares in companies in which they aren’t involved in the running. The relief is called investors’ relief (IR). The relief is given in the form of a low tax rate of 10%. IR applies to gains relating to the sale or transfer of ordinary shares in an unlisted trading company or the unlisted holding company of a trading group of companies.

To qualify for IR you must not be an employee or officer of the company, e.g. a director. The shares must be issued by the company to you on or after 17 March 2016, for new consideration. That means, for example, you can’t swap old shares for new ones, you must actually pay for them. The shares must be held continuously for at least three years starting on or after 6 April 2016 and ending with the date of sale or transfer.

The maximum gains for which an individual can claim IR during their lifetime is £10 million.

IR provides tax relief for investing in businesses where you don’t qualify for enterprise investment scheme (EIS) or seed enterprise investment scheme (SEIS) relief.

Are there restrictions to IR?

Relief is not available if you or any person connected with you is an employee at any time during the period of share ownership. For example, if a child of the investor gets a job with the company, IR will be lost for good – even if it happens after three years have passed.

The favourable tax treatment of shareholdings will make capital rather than income-earning investments more attractive.

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BUSINESS ASSET DISPOSAL RELIEF (BADR)

What is BADR?

Business asset disposal relief (BADR) (previously called entrepreneurs’ relief) can apply when you sell part or all of your business, or shares in a company (as long as you own at least 5% of the ordinary shares and are an officer, i.e. director or company secretary, or employee of the company). The relief was introduced from 6 April 2008. Since June 2010 BADR is given in the form of a lower than usual rate of CGT (10%) on gains.

What’s the limit for BADR and when did it change?

There is a lifetime limit for BADR For gains made on or before 5 April 2020 it was £10 million. For later gains the limit is £1 million. This means you can make any number of gains from selling businesses and claim BADR on up to £1 million of these. Gains in excess of the lifetime limit are taxed at normal CGT rates which will usually mean 20%.

Note. Because of the reduction in the lifetime limit, it may be the case that you have already exceeded it with previous disposals. For example, if you had previously claimed entrepreneurs’ relief on £6 million of gains, you won’t be able to use BADR at all – even though prior to 6 April 2020 you would have had £4 million of the old limit available.

Keep a record of each BADR claim you make to refer to in future. HMRC will not keep a record of the amount of the lifetime limit that you have used but it will penalise you if it finds that you have not used the BADR limit correctly, resulting in an over-claim.

How and when can I claim BADR?

BADR must be claimed by the individual who makes the gain, although in the case of gains made by trustees, the claim must be signed by both the trustees and the beneficiary. You will normally make the claim on your self-assessment tax return for the tax year in which the gain arose. If no tax return has been issued to you or your return has already been submitted, you can make a claim by letter to HMRC.

The claim has to be made by the first anniversary of 31 January following the tax year in which the gain arose. For example, if you made a gain in 2023/24, you have until 31 January 2025 to make a claim. You can withdraw a claim within the same period.

If you need any more help take a look at our Accounting Services Pages

What are the qualifying conditions for BADR?

The first condition is that the gain for which BADR is claimed must result from the sale or transfer of a business asset.

This can include:

• assets by a sole trader in their business, including intangible assets such as goodwill (subject to restrictions)
• a share of a business partnership, including an LLP; and
• shares in a limited company.

The transaction must be for the sale or transfer of:

• the whole of a business or a material part of it; or
• an “associated disposal”. Essentially, assets used in a company or partnership’s business which are sold or transferred in conjunction with the sale or transfer of all or a material part of a business. For example, a company’s business premises personally owned by a director shareholder.

Ownership and trading conditions for individuals

• they must have owned the business or a share of it for two years leading up to the date of the sale or transfer
• for gains made from the sale or associated disposals, i.e. relating to assets used in the business where the business has ceased and the disposal is made within three years, the individual has owned the business for two years preceding cessation

There are additional conditions where the transaction is a sale of shares in a limited company.

Condition A. Throughout the two years preceding the transaction:

• the company is the individual’s personal company
• the company is a trading company or holding company of a trading group; and
• the individual is an officer or employee of the company (or one or more companies that are members of a group).

Condition B. This is satisfied where the company has, within three years preceding disposal, ceased to be either a trading company or a member of a trading group, and has met the tests set out in Condition A throughout the year preceding the cessation.

For the purposes of BADR, an individual’s personal company is one in which they hold at least 5% of the ordinary share capital of the company and have at least 5% of the voting rights of the company. For disposals made on or after 29 October 2018, they will also need to have held 5% of the rights to both distributable profits and assets in the event of a winding up.

A trading company group is one that carries on trading activities and doesn’t carry on other activities to a substantial extent. This rule also applies to the relief for gifts of business assets.

Those shareholders whose holdings fall below the 5% threshold should do some judicious topping up of their holdings to get them above the limit, provided this makes commercial sense, of course.

Example

Shane and Jenny are married and jointly own 9.4% of the ordinary shares of Soody Ltd. They are each treated as owning 4.7% of Soody Ltd, so the company will not qualify as their personal company. If each acquires a further 0.3% of the ordinary shares in their sole names, Soody Ltd will qualify as their personal company, but they both need to meet the employment requirement for their disposals of shares in Soody Ltd to qualify for BADR.

One spouse can transfer shares to another to boost their shareholding above 5% and so turn a non-BADR-qualifying shareholding into a qualifying one. If you gift shares to anyone other than your spouse, this will usually count as if you had sold the shares at market value. In a few circumstances the value of shares can count as employment income rather than a capital gain.

How do the rules apply to non-voting shares?

If your company has different classes of share, e.g. ordinary shares, preference shares etc., and some of these have limited rights, for example the shareholders don’t have a vote at the AGM, you may need to change things if you want to maximise BADR. This is because to satisfy the 5% test, you must have entitlement to both 5% of the votes (control) and 5% of the voting share capital. For example, you might want to let your employees/junior members of your family participate in the income and capital of the business, but do not want them to have a say in how the company is run and so have issued non-voting shares. These employees will not be entitled to BADR.

There’s nothing to say that you must have voting rights pro rata to the number of shares you own. Where a shareholder owns less than 5% of the voting shares you might consider changing the company rules so that they do have a vote. This could make BADR available on a future sale. But you need to take account of other tax consequences of such a change. Handing out voting rights might trigger an immediate income tax charge where the addition of the rights increases the value of the shares. However, in practice, the difference between, say, a 4% and a 5% voting right may not be worth much at all, but nevertheless you need to consider the effect.

If you are thinking of issuing new shares to bolster an individual holding to 5%, you need to take account of the side effects. For example, this may dilute the shareholding of others reducing their holding below the critical 5% mark for BADR.

However, changes were made in 2018 to give shareholders affected by such dilutions of ownership a chance to claim BADR by deeming that they sold their shares immediately before the dilution – they can then claim BADR on the resulting capital gain.

Conversely, the purchase by a company of its own shares can have the added benefit of pushing shareholders above the 5% point and giving them a new entitlement to the relief. Whenever such transactions take place, recalculate the entitlement to BADR.

Do I need to be an employee of a company to qualify for BADR?

To qualify for BADR you must be either an officer or employee of the company in which you hold the shares. If your company is a member of a trading group, being employed by one of the other companies in that group satisfies this condition. This condition must be met for a continuous period of at least two years ending with the disposal date.

Example

Bob owns 7% of the (voting) shares in Acom Ltd. He has worked on the shop floor for 20 years. He also owns 5% of the ordinary shares of Coma Ltd, but he does not work for that company. The remaining shares in both companies are owned by a holding company, Acom Group Ltd. When Acom and Coma are sold, Bob will qualify for BADR in respect of his shareholding in both these companies because he has satisfied the employment requirement of working for the company in which he held shares, i.e. Acom, or another company of the same trading group, i.e. Coma.

It can be easy to arrange to meet the BADR working requirement because it doesn’t have to be full time. Neither is there a minimum number of working hours needed to qualify. But it does need to be met continuously throughout the two-year period, ending with the sale date. There is also no requirement for the shareholder to be paid; however, in these circumstances without a contract of employment it might be difficult to show that you were employed. A director is an office holder, as is a company secretary. Although company law no longer technically requires there to be a company secretary, retaining this post means the individual with this role can claim BADR. Non-executive directors are also officers of the company.

Whether an individual is an officer of the company (director or company secretary) can be easily confirmed by checking with Companies House. Therefore, make sure officers are properly appointed and correctly registered.

How does BADR apply to associated disposals?

Essentially, associated disposals are transactions where you dispose of, i.e. sell or transfer, a personally-owned asset which was used in a business on which BADR has been allowed.

You need to know about the rules for associated disposals if you own an asset that is used by your company or a partnership of which you are a partner.

Note. The associated disposal rules do not apply to sole traders.

Two common situations where you need to understand the associated disposal rules are where you own:

• the trading premises for your business of which you were the personal owner; or
• the intellectual property rights to a product which your company sells.

If you dispose of the asset used by your company after selling your shares in your company, then the gain on that asset will also qualify for BADR as an associated disposal, provided certain conditions are met.

What are the conditions for associated disposals?

Both the following conditions have to be met to qualify for BADR as an associated disposal:

• the asset is disposed of as part of your withdrawal from participation in the business carried on by your partnership, personal company, or the business carried on by your trading group; and
• the asset was used for the purposes of the business for a least two years up to the date of disposal of your share of the partnership or shares in your company, or if earlier the date the partnership or company ceased to be in business.

HMRC has said that it regards “withdrawal from participation” as referring to financial involvement and not working commitment. Therefore, there is no need to reduce your level of work or salary to obtain BADR. What is required is a disposal of shares in a company, ownership of a partnership, or of the whole or part of the business.

To qualify for BADR for a gain made from associated disposals, a shareholder or partner in a business must dispose of at least 5% of the business.

What are the time limits for associated disposals?

The legislation does not give a time period during which an associated disposal must be made. However, HMRC guidance says a disposal may be associated if it is:

• within one year of the cessation of business
• within three years of the cessation of business and the asset has not been used for any other purpose at any time after the business ceased; or
• where the business has not ceased, within three years of the material disposal provided the asset has not been used for any purpose other than that of the business.

What restrictions can apply to associated disposals?

A claim for BADR under the associated disposal rules will be restricted where any of the four conditions listed below apply:

• the asset has only been used in the business for part of your period of ownership
• only part of an asset has been used for the purpose of the business
• you were only involved in the business as an employee/officer for part of the time the asset was used for the business; or
• rent was paid to you for the use of the asset by your personal company in the period after 5 April 2008.

Where they do, then the amount of the capital gain on the associated disposal of the asset to which BADR applies is reduced.

Note. The rent restriction means any form of consideration given for the use of the asset, including licence fees for intellectual property, e.g. know-how.

Example

On 1 December 2023 James sold the shares in his company along with the intellectual property rights used by it and which James personally owned. James’s granted a licence to his company for use off the intellectual property from 1 December 2020 until 31 August 2024 (45 months). James made a capital gain of £120,000 from the sale of the intellectual property.

James was not involved as an employee or officer of the company from the date he sold his shares in it (see the third condition above) and so BADR must be restricted to exclude this period, i.e. nine months from December 2023 to 31 August 2024. This will usually mean apportioning the gain, in this case by time. In this example only 36 months of the 45-month period is a BADR qualifying period. The taxable gain is calculated as shown in the table below.

2023/24	Gain (£)	Tax (£)
Total gain on licence fee	120,000
Restriction of BADR (£120,000 x 9/45)	(24,000)
Gain eligible for BADR	98,000	9,800
Gain taxable at 20%	24,000	4,800

What effect on BADR does paying rent have?

Where the company pays you rent for the use of a property it uses in its business, this will cause the BADR to be lost or reduced. Even if the rent is stopped now, any gain relating to the period when rent was paid will not fully qualify for BADR. But that is not the whole story, there are income tax consequences to consider too.

Example

Carlos has potential gains on his company shares of around £200,000. The building that he rents to the business is showing a potential gain of £500,000. He has a mortgage on the property that costs him £10,000 in interest each year. He charges his company rent to cover this. The company pays corporation tax (CT) at the small profits rate of 19%.

If the company stopped paying rent so that Carlos could claim BADR on the building when he eventually sold it, the tax position would be as follows:

The company would lose CT relief of £1,900 because it no longer paid rent. Carlos would need to draw £10,000 (net of tax and NI) each year from the company to cover the interest payments on his loan. If this were taken as a dividend Carlos would have to pay income tax of £3,250 on this because he’s a higher rate taxpayer. So not drawing the rent could cost £5,150 (£1,900 + £3,250) each year in tax charges and lost tax relief.

Stopping the rent will allow a greater proportion of the gain to attract BADR. But unless he knew when the property would be sold, and for how much, he could not say whether the greater BADR will fully compensate him for the other tax costs. The general consensus is that it’s better accept a definite tax advantage rather than rely on a possible one. So following that advice, Carlos should check carefully before ending the rent arrangement.

The example highlights the need to keep an eye on all the tax consequences of your arrangements, both personal and business, especially those that interact and involve more than one tax, including NI contributions.

Can BADR apply to gains made on assets transferred to my business?

The restriction on BADR for personally-owned assets doesn’t apply where they are owned by your company. But the decision on whether you should transfer a personally-owned asset into your business is a tricky one as there are other tax issues to take into account apart from those already mentioned:

1. The company will have to pay stamp duty land tax on the value of the property when it’s transferred (or land and buildings transaction tax if the property is in Scotland/land transaction tax for Wales).
2. After the transfer the property will be incorporated into the company’s net worth, which in turn will reflect in the value of its shares. And, of course, subject to the usual conditions, any gain made from the sale of shares can qualify for BADR.
3. Putting the property into a company that you control, i.e. own or control shares in etc. that give you greater than 50% of the voting rights, will also provide further inheritance tax savings by promoting the rate of relief from 50% to 100%.
4. If the property is retained outside the company, a subsequent disposal must take place at a time when the owner sells shares out of a holding that qualifies for BADR. It does not, however, have to be sold to the purchaser of the shares, and could be sold to an unconnected third party. A sale at any other time will be fully taxable.
5. Retaining the property outside the company allows flexibility; should it become surplus to requirements the owner could seek to let it to a third party. But inside the company there’s the tax risk that this would deny BADR on the value of the shares, as letting the property would be a non-trading activity. This would compromise the trading status of the company and therefore potentially deny relief on the sale of shares.

Does BADR apply to assets owned by trustees?

BADR can apply to trustees who make qualifying disposals, but special rules apply. These say that the trust can use some of the BADR lifetime limit of one of its beneficiaries. The beneficiary must meet the conditions for BADR personally, including the need to own 5% or more of the voting shares and meet the “officer or employee” condition. Where the trustees make a claim for BADR, the beneficiary will be treated as having used a corresponding amount of their lifetime limit.

How does BADR interact with EIS and SITR?

Capital gains that qualify for BADR and which are deferred using enterprise investment schemes (EISs) or social investment tax relief (SITR) remain eligible for the 10% BADR CGT rate when the EIS or SITR shares are sold.

Example

Jane sold her business in March 2022 making a capital gain of £1 million, all of which qualifies for BADR. Assuming the CGT is £100,000 (£1 million x 10%), it is payable on 31 January 2023. However, if Jane invested £1 million in one or more EIS companies the whole tax bill can be deferred until the EIS investments are sold or transferred. What’s more, the BADR 10% rate will apply.

What’s the CGT position for sales or transfers of goodwill?

Where you sell or transfer the goodwill in your business to a close company (broadly, that’s one which is owned or controlled by five or fewer individuals), with which you’re related, you cannot claim BADR if you make a capital gain.

The above restriction on BADR doesn’t apply if you alone or with a relevant connected person (broadly, this means a family member) don’t own or control 5% or more of the company’s ordinary share capital. However, BADR does not apply if you sell or transfer the shares of the close company within 28 days of the sale of your business to a company in which you and a relevant connected person hold less than 5% of the ordinary share capital.

Are there alternatives to BADR when I sell goodwill to company?

While BADR cannot apply to gains you make from selling goodwill to a company in which you own or control 5% or more of its ordinary share capital, there are two other reliefs that can allow you to avoid or reduce CGT. They are:

• incorporation relief; and
• holdover relief.

These reliefs allow you to defer tax on any capital gains you make when you transfer your business to a company. The gains become chargeable when you sell some or all of your shares in the company.

What are the BADR anti-avoidance rules?

Following consultation, the government introduced new targeted anti-avoidance rules (TAARs) aimed at what it perceived as misuse of BADR.

Since 6 April 2016 when you wind up a company voluntarily and within two years start a new, substantially similar business, whether it’s run through a company or is unincorporated, you are at risk of losing any tax saving you achieved from BADR in relation to capital gains made from winding up the old business. HMRC can issue special assessments to treat the distribution made on winding up, which usually counts as capital, as if it were income, i.e. like a dividend. This would mean tax rates of up to 38.1% could apply.

The TAAR only applies where the following conditions exist:

Condition A. The individual had at least a 5% interest in the company which was wound up.

Condition B. The company is a close company, or has been so within the previous two years. Broadly, a close company is one which is controlled by five or fewer individuals or is controlled by its directors.

Condition C. Within two years after the date of the winding up distribution, the individual receiving it, or someone connected to them, e.g. a member of their family, is involved in carrying on any trade or other activity previously carried on by the company.

Condition D. It’s reasonable to assume that one of the main purposes for winding up the company was to avoid tax.

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SEED ENTERPRISE INVESTMENT SCHEME

What are seed investments in companies?

The seed enterprise investment scheme (SEIS) is based on the same principles as the enterprise investment scheme (EIS), but with important differences. Investing in an EIS company you’ll qualify for a credit against your tax bill equal to 30% of what you invested. Plus, subject to certain limits, you can defer tax that would have been payable on capital gains up to the amount you invest in an EIS. Any growth in value of the EIS company is usually CGT free. SEIS is more generous than this.

The income tax relief for SEIS investments is 50% rather than the 30% for EIS investments. Plus, as an incentive for you to invest in small and new companies, there are special CGT breaks:

• SEIS investments qualify for CGT reinvestment relief. This means that if you make a capital gain and invest in a SEIS company reinvestment relief is allowed on up to half of the gain it is applied to. Reinvestment relief is given for the same tax year in which the SEIS income tax relief is given
• gains made from the sale of shares in a SEIS company are exempt from CGT after three years; and
• where your investment in SEIS makes a loss, you can offset it against your income tax bill.

Note. There’s a cap of £200,000 on the amount you can invest in SEIS companies each year. This increased from £100,000 from April 2023.

Example

In March 2024 Jim, a higher rate taxpayer, makes a capital gain from selling shares of £36,000. The tax on this would be £6,000 (gain £36,000 less his annual exemption of £6,000 which leaves a taxable amount of £30,000. This is liable to 20% CGT resulting in tax of £6,000).

In December 2024 Jim invests £36,000 into a SEIS. As well as his income tax relief of £15,000, he can claim reinvestment relief against any 2024/25 or 2023/24 gains he made. He opts to carry back the SEIS relief to 2023/24 to reduce the gains he made from selling his shares (the income tax relief is also allowed against his income tax for 2023/24). The maximum amount of CGT relief is equal to 50% of the SEIS investment, i.e. £18,000. The relief reduces the taxable gain for 2023/24 to £12,000 (£36,000 – £18,000 – £6,000) and the CGT to £2,400 (£12,000 x 20%) saving Jim £3,600.

Are there conditions for SEIS companies?

Yes. Like EIS companies SEIS businesses must have trading income and meet other conditions. You can find out more about the conditions from HMRC’s guidance, which can be found at https://www.gov.uk/guidance/venture-capital-schemes-apply-to-use-the-seed-enterprise-investment-scheme.

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