Insights

Investment made in your own business and indeed in other businesses can often attract tax relief – even when things go wrong. It is also often possible to use such investments to claim relief in an earlier tax year, creating immediate funding for yourself to offset the cost of the investment.

This blog provides examples of different ways in which investments and losses can create a tax advantage and how they can provide an immediate tax saving.

1. Invest in an enterprise investment scheme (EIS) or a seed EIS (SEIS) company

A qualifying investment in an EIS or SEIS company attracts income tax relief at 30% and 50% respectively. It is possible to elect that an investment made in one tax year should be treated as made in the previous tax year by making a carry back claim for up to 100% of investments made. Therefore, for example, an investment made before 6 April 2017 can reduce your tax liability for 2015/16.

2. Carry back of trading losses

Trading losses incurred from self-employment are generally carried forward indefinitely to offset against future profits from the same trade. However, there are alternative ways in which these losses can be used;

• They can, subject to restrictions, be offset against general income in either the same or the previous tax year;
• Losses incurred in the first four tax years of trading can, subject to conditions, be carried back and offset against general income of the previous three tax years; and
• Losses incurred in the last 12 months before a cessation of trade can be carried back and offset against profits of the same trade in the previous three tax years.

3. Losses on unquoted shares

Capital losses incurred on the disposal of unquoted shares, which were originally subscribed for, can be converted into an income loss which can then be offset against income in the year of disposal, or the previous tax year. The amount of tax relief is therefore higher than if the loss was claimed against capital gains. If the shares are not disposed of but have become worthless, it is possible to make a ‘negligible value’ claim and thus establish a loss which can be claimed on the same basis.

4. Rollover capital gains on business assets

If you sell a qualifying business asset and the sale results in a capital gain, the gain can be rolled over into the cost of another qualifying business asset which is acquired within one year before and three years after the disposal. In this case the gain which has been rolled over will become chargeable to capital gains tax only when the replacement asset is sold.

A gain arising on the disposal of any asset can also be held over on a similar basis if reinvested in EIS qualifying shares and, if invested in SEIS qualifying shares, 50% of the gain falls out of charge completely.

5. Make gifts to charity

Gift Aid donations attract higher rate tax relief by extending your basic rate band, by extending the amount of income on which you pay only basic rate tax.

You can treat Gift Aid donations as if made in the previous tax year, provided you make an election within the necessary timeframe.

Talk to RJP about ways to implement some of these carry back tax planning ideas and reduce your tax bills in January 2018. Email us at partners@rjp.co.uk