One of the properties was a flat in Manchester, which Paula decided to give to her grown up children, Helen and Catherine. Their Dad had owned the flat for over 20 years and since he had died, its value had increased by £90,000. Paula then realised that she would have to pay a significant amount of capital gains tax, and came to us for help.
We spent time with Paula to understand what she needed. By carrying out a full fact find of her circumstances and using our Lifestyle Cash Flow analysis, we could map out what income Paula would need to enable her to continue to pay for her lifestyle. Part of our recommendation was to invest in to an Enterprise Investment Schemes (EIS), which would enable Paula to holdover the capital gain, provided she invested the whole of the gain in the EIS. Another benefit, is that providing she still holds the EIS shares when she dies, there will be no Capital Gains Tax (CGT) to pay.
There are other reasons why Paula chose to invest in to an EIS. After she has held the investment for 2 years, it effectively ‘falls’ out of her estate for the purposes of Inheritance Tax (IHT) She has also benefited from being able to reclaim up to 30% of the amount invested against income tax that she paid in previous tax years.
Know the risks: Investments that qualify for Business Property Relief, such as Enterprise Investment Schemes, can carry a higher degree of risk than ordinary mutual funds and may not be suitable for every client situation. It is important to take independent financial advice before making any decisions to invest in an EIS and there is a significant risk that you may not get back the same amount that you originally invested. The Financial Conduct Authority does not regulate trusts and some aspects of Inheritance Tax Planning.