Schemes to take away the pain of capital gains tax

Being landed with a large capital gains tax (CGT) bill can take some of the joy out of the gain you have made on a particular deal. As last week's article showed, there is a certain amount of basic planning that can be done to reduce the pain. But can we go further - can we find a fiscal Paul Daniels or David Copperfield who will magic away that tax bill altogether?

Oddly enough, the Inland Revenue itself offers a range of tricks to make the CGT bill disappear. Some of them involve accepting a bit of risk.

If you are willing to invest in an unquoted trading company, there is considerable scope for sheltering any gain. Firstly, reinvestment relief, which requires you to buy shares, or subscribe for new ones, in a qualifying company.

The key to "qualifying" is that it is a UK business, it trades (rather than invests in property, for example), doesn't do certain prohibited trades (including giving tax advice!) and it is not quoted on the main Stock Exchange. A share listed on the Alternative Investment Market will qualify.

You have quite a long time scale to do the investment - one year before to three years after your disposal that gave rise to the gain. And you only have to invest your gain - not the whole of the proceeds. You may not wish to reinvest direct - or may not find it easy to identify the right company. Fortunately, companies are increasingly getting Revenue approval under a new clearance scheme. A good investment adviser should have a few for you to consider.

Or you may wish to spread your risk. Venture capital trusts (VCTs) are springing up which offer opportunities for some income tax relief at 20 per cent on your investment. They also offer the chance to shelter the capital gain.

There is a pounds 100,000 limit on how much you can invest in a year. Going a stage further, if you really have found the company you want to put your money into, and are willing to subscribe for new shares, the enterprise investment scheme allows you to get reliefs in the same way as a VCT.

All of these reliefs are geared to getting the taxpayer to put money into a riskier environment, channelling funds to companies that traditionally find it hard to attract finance.

Bear in mind that the gain that you have deferred will pop out when you sell the new investment - but the same opportunity for deferral may be there again, though whether the reliefs last under a change of government is an interesting question.

There is also an automatic and full relief that must not be forgotten. Retirement relief gives full relief for gains of up to pounds 250,000 and half- relief on the balance of gains up to pounds 1m. What do you have to do? Sell that business!

Most trading businesses qualify and - provided you have been fully involved for 10 years - you can expect very substantial relief. There are a lot of quirks, though, oddly, two key ones favour the taxpayer. First, you don't actually have to retire - you can keep working. Second, 50 is the normal qualifying threshold.

Overall, you can play fiscal magic and make your gain disappear, perhaps only for a while - but a gain deferred is no bad thing.

The catch is you have to do it carefully - there is always a risk you end up with a broken egg rather than a rabbit when you reach into the top hat to retrieve your investment.

John Whiting is a tax partner with Price Waterhouse.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
One of the installations in the Reiner Ruthenbeck exhibition at the Serpentine Gallery
artCritics rally to defend Reiner Ruthenbeck's 'Overturned Furniture'
News
John Cleese is promoting his new book
people
News
A-list actresses such as Deepika Padukone get paid a tenth of what their male counterparts make per film
news
News
The Black Friday Vines that will destroy your faith in humanity
i100

Arts and Entertainment
The cast of Downton Abbey in the 2014 Christmas special
TV
News
Robbie Rogers: US former Leeds United footballer, 25, announced he was gay in February 2013, shortly after he left Elland Road. Rogers 'retired' after writing on his blog: 'I'm a soccer player, I'm Christian, and I'm gay.' Has since signed with Los Angeles Galaxy.
peopleUS footballer said he had hoped Michael Sam and Jason Collins coming out might have helped
Arts and Entertainment
Johnny Depp no longer cares if people criticise his movie flops
films
Arts and Entertainment
All in a day's work: the players in the forthcoming 'Posh People: Inside Tatler'
TVGrace Dent thinks we should learn to 'hug a Hooray Henry', because poshness is an accident of birth
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
art

Presents unwrapped, turkey gobbled... it's time to relax

Arts and Entertainment
Convicted art fraudster John Myatt
art

News
The two-year-old said she cut off her fringe because it was getting in her eyes
news
Finacial products from our partners
Property search
Sarah Bibby and Robert Allinson, with their children Charlotte and Ethan, confronted the ‘difficult’ questions’ posed by making a will

Simon Read: There may be trouble ahead for cohabiting couples who don’t make a will

Your children have it all, your partner gets nothing

Halfords is gearing up for Christmas

Bargain Hunter: Find the deals that have real value beneath the Black Friday hype

Halfords is gearing up for Christmas

Fields of dreams: venture capital trusts help young companies to grow, potentially delivering big returns for investors

Mark Dampier: You take a chance but VCTs have sorted the wheat from the chaff

Fields of dreams: venture capital trusts help young companies to grow, potentially delivering big returns for investors 

The FCA has imposed £1.1bn in fines on five banks over forex trading practices

Simon Read: Catch 22 for borrowers who are turned down by banks

There are many reasons for people to turn to high-cost credit, but being turned down by their banks for a loan is one

The battle between the banks to attract more current account customers moved up a level this week when Yorkshire Bank (and Clydesdale Bank) launched a market- leading £150 switching incentive.

Money Insider: Would £150 make you switch banks?

The £150 incentive from Yorkshire and Clydesdale runs from now until 28 February next year, but you must use the official Current Account Switching Service (CASS) and close your existing account to qualify

The short slope that takes women all the way down to living on the streets

For the rising number of homeless women, the struggle is compounded by health problems and by losing their children

If you’ve got a card in your wallet that charges a low standard interest rate, there’s less financial impact if you can’t repay your full statement balance.

Money Insider: Save money with the right credit card

Research from Sainsbury’s Bank Credit Cards this week revealed that 15 per cent of people making a large purchase on their plastic didn’t use one with 0 per cent interest on purchases

Last week was hangover time, when Stock Spirits, a vodka producer, distilled a profit warning that sent its shares crashing more than 25 per cent. (image: Rex Features)

No Pain No Gain: Vodka causes a hangover as shares in Stock Spirits slump

Last week was hangover time, when Stock Spirits, a vodka producer, distilled a profit warning that sent its shares crashing more than 25 per cent

Investment melting pot: the price of gold may have fallen but Artemis Strategic Assets believes its value cannot be debased

Mark Dampier: Strong returns can be found if you go the opposite way to the crowds

Investment melting pot: the price of gold may have fallen but Artemis Strategic Assets believes its value cannot be debased

The Bank of England announced that interest rates will stay at 0.5 per cent

Simon Read: Banks can’t blame the economy for their low rates

Interest rates are currently as low as 0.1 per cent

The schemes work by using collective power to negotiate better deals with gas and electricity suppliers

Simon Read: Don’t blow a fuse with your energy supplier, just switch

The energy watchdog Ofgem has slammed Scottish Power, while Citizens Advice reports a string of complaints about it

John Lush from Hampshire got into debt with payday lenders and had the help of a debt management charity to clear the £20,000 he owed

Simon Read: The only place for debt is out in the open, don't be afraid to ask for advice

John Lush from Hampshire got into debt with payday lenders and had the help of a debt management adviser to clear the £20,000 he owed

Seven Families campaign aims to raise awareness of financial damage caused by illness or disability

The campaign is handing financial help to seven families for a year, along with support and advice in how to get their careers back on track
The 10th birthday of broadband in Britain was marked with a projection in 2010. But the infrastructure is still being rolled out

Families pay the price of superfast broadband

Bills are going up for households around the UK as providers invest in better infrastructure. Emma Lunn explains why - and what to do

How to cut the cost of car insurance: A five-step guide to getting a better deal

Premiums are on the rise again but motorists don't have to take a back seat on the price of their cover, says Rob Griffin
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Austen Lloyd: Company Secretary

    Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

    Citifocus Ltd: German Speaking Client Specialist

    £Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

    Citifocus Ltd: Performance & Risk Oversight

    £Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

    h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

    £90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game