Private investors who have deferred a capital gains tax (CGT) liability through investing in an Enterprise Investment Scheme (EIS) will pay 80% more tax if they sell after 5 April.

It is common to invest in an EIS company using profits from a previous investment in order to avoid paying the tax immediately. But accountants warn these gains will now be caught under the new 18% flat rate.

Neil Pamplin, client service director at Grant Thornton, says: ‘It is confirmed worst case I’m afraid, gains deferred into EIS will be taxed at 18% when the EIS share is disposed of.’

It had been unclear whether the new flat rate of tax – which replaces the taper relief system whereby CGT is potentially reduced to 10% – would also apply to deferred gains.

At present, a higher-rate taxpayer who invested a £10,000 gain two years ago into an EIS-qualifying company will only have to pay a £1,000 tax bill. From midnight on 5 April that rises to £1,800.

EIS investors have been allowed to defer any amount of gain they wished into an EIS company so selling now could potentially lead to large absolute savings.

The chancellor tinkered with EIS tax rules in the Budget whereby investors will now be able to recoup up to £100,000 in income tax relief compared to £80,000 previously. But there were no concessions to the tax treatment for deferred gains.