Enterprise Investment Scheme
This scheme provides incentives by way of a variety of tax reliefs to individuals who invest in smaller, unquoted trading companies.
The main relief is a reduction in the investor’s income tax bill of 30% of the amount invested in the tax year, up to maximum investment of £1m.
It is possible to have the investment treated as if it was made in the previous tax year. This will be of benefit if you were paying income tax at a higher rate in the previous year.
Capital gains tax on the disposal of an asset can be deferred by investing the proceeds in EIS shares and any gain made on the eventual sale of EIS shares should not be subject to capital gains tax provided that the shares have been held for at least 3 years.
If EIS shares are sold at a loss, the loss can be offset against income rather than capital gains, which will be beneficial if you are a 40% or 45% income taxpayer.
A further benefit is that, provided certain conditions are met, the shares will not be liable to Inheritance Tax on the shareholder’s death.
Seed Enterprise Investment Scheme
This scheme is similar to the Enterprise Investment Scheme but provides tax relief on investments into qualifying companies which are less than 2 years old and is therefore designed to encourage investment into start-up companies.
Income tax relief of 50% is available on amounts of up to £100,000 per year.
SEIS reinvestment relief is available when gains arising on the disposal of an asset are reinvested in SEIS shares. The investor can claim to reduce their capital gain by an amount equal to 50% of the SEIS investment. The maximum reduction which can be achieved is £50,000.
Gains on SEIS shares sold after more than 3 years are not subject to capital gains tax.
A further benefit is that, provided certain conditions are met, the shares will not be liable to Inheritance Tax.
Venture Capital Trusts
The main relief is a reduction in the investor’s income tax bill of 30% of the amount invested in the tax year, up to a maximum investment of £200,000. Dividends arising from the shares are exempt from tax.
Gains on sale of VCT shares will generally not be subject to capital gains tax provided that the shares have been held for at least 5 years.
This article is just an overview of the available reliefs. It is vital to take detailed, specific advice before entering into any transaction involving these reliefs. If you would like to find out more please contact your usual Ryecroft Glenton contact.