One legitamate way of delaying the payment of capital gains tax on a disposal of shares is to invest the proceeds under the Enterprise Investment Scheme (EIS).
The EIS encourages investors to put money into new shares of unquoted companies by offering them income tax relief at 20% of the amount invested, and CGT deferral relief. The amount you invest is subtracted from your taxable gain on your first investment.
» Example
In July 1998 you sold shares in Multimower for £50,000 that had cost you £20,000 in 1985. In August 1998 you invest £10,000 in Riskyco, a qualifying EIS company.
| Sale proceeds of Multimower: | £50,000 | |
| Base cost: | £20,000 | |
| Indexation: | £10,000 | |
| Total Base Cost + Indexation | £30,000 | |
| Gain: | £20,000 | |
| Subtract EIS CGT relief | (£10,000) | |
| Taxable gain for 1998-99 | £10,000 |
The general rule is that the investment must be held for a minimum period and any gains subsequently made from the EIS company are free of capital gains. However at this point the original capital gains tax on the investment in Multimower has to be paid.
The risks associated with EIS companies are high and you should take professional advice before committing funds to them.
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