12. REITs, VCTs and EIS

Question 1

REITs

Answer 1

Any gains and income are exempt at REIT level, but taxed at investor level when paying dividends

REITs are required to distribute their tax-exempt rental income (but not gains) to shareholders

Dividend income taxed as property income at investor’s marginal rate

Question 2

VCT Benefits

Answer 2

Following benefits on maximum qualifying investment of £200,000 per year:

• 30% reduction in amount invested (relief is withdrawn if shares sold / ceases to be VCT within 5 years)
• Dividends received are tax free
• CG on sale of shares are exempt from CGT and any gains inside the VCT are exempt

Question 3

EIS - Income Tax Relief

Answer 3

Individual with 30% or less ownership can reduce income tax liability by 30%

Provided held for 3 years

Max investment in a year is £1m (£2m if knowledge intensive)

Individuals can treat their subscription of shares from the previous tax year

Question 4

EIS - CGT Exemption and Deferral

Answer 4

Exemption - no CGT is payable on shares sold after 3 years

Deferral

• can defer CGT liability by reinvesting gains in EIS shares
• must be within 1 year before or 3 years after disposal
• relief at CGT tax rate (20% higher etc)

Question 5

EIS - Loss Relief

Answer 5

EIS shares disposed at a loss can be set against investors income in same or previous tax year

Question 6

EIS - SEIS

Answer 6

Provides 50% income tax relief for up to £100,000 investment per tax year

50% CGT exemption on reinvested gains

Exempt from CGT on disposal if has been held for 3 years