Calling all Property Investors - Free Investment Capital from HMRC...

We all know the old saying...

"If it sounds too good to be true, then it usually is!"

In most circumstances I'd agree with this statement but, and it's a big BUT, there are almost always exceptions to any rule.

In fact, I've spent the past 30 years of my investing and entrepreneurial career looking for or creating these "to good to be true" anomalies.

For example...

• Everyone told me that achieving 300% more rental income from buy to let investing was not possible, but we did it with more than 1,100 properties via ( Platinum Property Partners )
• Achieving an 80X increase in value in just two years with a tech investment... another tick in the box (credit here goes to one of my business partners David Bell and the incredible team at Triple Whale :-)
• And they said we couldn't help an e-commerce brand go from ￡1,000 a month to ￡1 million a month in three years, but we did (credit here to my business partner Tash Courtenay-Smith and Maxine, Darcy, Margot and their team at Absolute Collagen .)

So whilst it's not easy to make investments, create businesses and deliver results that most people think are impossible, as these examples show, it can be done.

So how does this relate to you?

Well sometimes, treasure is hidden in plain sight.

Sometimes you can hold a diamond in your hand but because it's covered in mud, you might miss the value hidden beneath.

With such volatility in the markets and the cost of living crisis, I want to share with you a strategy that could be of real value to you.

What if I told you that HMRC will fund 100% of investments you make in certain types of businesses?

Would you believe me or does that just sound to good to be true?

Well firstly, this does not apply to everyone or every business.

BUT, if you have paid Capital Gains Tax from any source in the last three years, or you will be paying CGT in the coming months or years ahead, then this is 100% possible, subject to the criteria below.

What I think is most exciting is that there are vast numbers of property investors who have sold part or all of their portfolio's, due to Section 24 and other tax and legislative changes to the residential property market.

Property investors have been singled out, along with hedge funds, to pay 28% CGT as opposed to the 20% paid by everyone else.

Back in 2016, with a good friend, Chris Cooper, along with support from awesome people like Jamie Fraser and many others in the industry, we took the government to the high court to try to overturn Section 24 (AKA The Tenant Tax.)

Tony Blair's wife Cherie, was our QC. The irony of a former Labour prime ministers wife taking a conservative government to the highest court in the land on behalf of property investors was not lost on the media. We had widespread national coverage but sadly, we lost our case.

However, just as we predicted, this and other measures would lead to rents rising significantly, causing a rental crisis the likes of which we have never seen before in the UK. Everything we said would happen six years ago, came to pass.

So whilst we were not able to change government legalisation, what property investors and others that have paid Capital Gains Tax are able to do is to use a fantastic, government backed scheme, that encourages investment into early stage businesses.

This means that property investors that have sold in the last three years not only stand to profit more from this totally legal approach, but it can be a great way to recover from some of the devastating tax attacks from HMRC.

The estimate for Capital Gains Tax payments in 2022/23 according to the Office of Budget Responsibility is ￡15.9 billion.?

So there is nearly ￡16 billion of tax, some of which could be reinvested in up and coming companies in the early stages of growth.

Investments that have the potential to produce a 10X plus return.

And even if they fail, there are ways of recovering a lot of the losses against tax.

So let's dig into this in more detail because it really is...

There's an incredible scheme created and continued by successive governments and it's called the Enterprise Investment Scheme, or EIS for short.

Now like most people I speak to, you might well know about it, but I suspect that you don't really appreciate how truly amazing it is.

That is unless you are an accountant, financial advisor or professional investor.

But even then, I've met lots that are not actually able to explain it in a way where the average investor can understand it.

So not only is it true, it can support mission driven entrepreneurs to change the world and in the long run, actually results in more jobs and tax paid, which is good for the economy and society.

So in this article, I will break-down one of the little known benefits of EIS and how you can get free investment capital for EIS qualifying investments.

I will also share with you how you can get more information and learn more about some of the other amazing benefits offered by EIS that you may not be aware of.

First up, you should take professional advice on your own personal circumstances from your accountant or qualified tax advisor.

Secondly, you must be a UK resident to take advantage of EIS tax benefits.

Now, let's look at this little known benefits of EIS in relation to CGT with a simple example...

EIS CGT BENEFIT:

You can allocate 100% of capital gains tax you have paid in the last three years against an EIS qualifying investment, or you can do the same for future CGT payments you will make.

EXAMPLE:

Let's say you sold an investment property last year and made a ￡100,000 capital gain. You paid 28% capital gains tax within the allocated 60 days, so a payment from you to HMRC of ￡28,000. That's sunk cash - or is it?

Now in this or some future tax years, you could claim EIS deferral relief and use this ￡28,000 that you overpaid when you filed your personal tax return.

This in turn means that you recover 100% of the CGT you paid (￡28,000) and put this towards an EIS qualifying investment - IE your tax payment is now converted into shares in a business.

So you recover the CGT and you might only have small fees to pay on your investment if you invest via a fund or angel network, but these are typically negligible.

The other EIS benefits listed below can also apply but you should note the following...

Let's assume you exit the investment you made with the ￡28,000 and it makes a profit in year four. You will then need to pay back the ￡28,000 CGT to HMRC. BUT, you've deferred your ￡28,000 tax payment for four years. Therefore not only has this probably depreciated in value due to inflation but you get all the other EIS benefits (see below.)

So in simple terms, putting Capital Gains Tax towards EIS investments means you can use money you have paid or are going to pay to HMRC, so that is funding the investment for you.

Please also note the following points:

• Although capital gains tax on residential property sales is payable within 60 days of completion, you can still claim back overpaid tax by utilising EIS deferral relief when filing your personal tax return.
• Deferral relief can be claimed even though the CGT rate on residential property is 28%.
• You can only make a claim for deferral relief when the investee company has full EIS approval. HMRC sends the company blank EIS3 forms (the certificate that you receive), which the company completes and returns to you. You can then attach these forms to your tax return to claim relief if you are eligible to do so.)
• You can defer gains of any size, made up to three years before and one year after the EIS investment.
• You can defer a gain even if you have already paid the tax.
• Once you get your money out, the gain comes back into charge and you pay CGT at the prevailing rate. Alternatively, you could invest into another EIS and continue to defer the gain.?

So recovery and deferral of CGT is a massive benefit of EIS and one that most people are not aware of.

There are lots of other benefits of EIS also that include..

• Paying zero CGT on the appreciation of your shares after three years, thereby saving 20% CGT ??
• Offsetting your investment against income tax, potentially reducing your tax bill. EG a ￡100,000 investment could provide a ￡30,000 saving on that year’s income tax bill. To claim this, you must have sufficient income tax liability in the first place and hold the shares for at least three years. ??
• Claiming loss relief should the investment not perform as expected, further mitigating investment risk - so, an additional-rate taxpayer could effectively reduce a total loss of ￡1 to 38.5p - a 62.5% loss reduction.
• Enjoying inheritance tax benefits after holding EIS shares for at least two years - an investment in an EIS-qualifying company should benefit from 100% relief from inheritance tax, provided the investment is held for two years and at the time of death.?
• Generous contribution allowance?- Invest up to ￡1 million per tax year or up to ￡2 million if anything above ￡1 million is invested in knowledge intensive companies.

So EIS and the CGT deferral option is an amazing tax benefit that very few people are aware of. There really is nothing else like it.

The subject however is not straight-forward but it can be worth very substantial amounts to you.

If you would like to find out more you can either speak to your professional advisors or get in contact with our team at Bolt.

We are also running a live webinar with Q&A at 4pm on Thursday the 30th March. If you would like to attend and learn more about this topic from me and my business partner and qualified accountant David Bell , please send me a DM or put a note in the comments below.

On this webinar we will also be highlighting an investment that meets the EIS criteria and one that we have personally invested ￡550,000 to date from our own company's funds.

As the tax year comes to a close, now is a great time to look at this if you have not done so previously.

Any points of further clarification from Accountants, IFA's and other investing professionals, I would love to hear from you in the comments below.

And if you have any questions on this article in relation to your own situation, please also feel free to comment and I'm sure you'll get lots of good free advice.

Successful investing :-)

Steve Bolton

Managing Partner

Bolt Angels