Small business is the lifeblood of the British economy yet it’s the sector that struggles the most when seeking investment to grow and prosper. HMRC’s various Venture Capital schemes, introduced by the Government to encourage private investment into high growth potential ventures, not only provide a real alternative to high street lending for the business owners but offer investors an enticing package of tax incentives.
Enterprise Investment Scheme (EIS)
Enterprise Investment Schemes (EIS) are an intelligent way for investors to fund small UK businesses in return for an equity stake – over 30,000 individual companies have benefitted from an estimated £22 billion of private investment through the scheme since its launch EIS in 1993. The nature of investing in small, often fledgling, companies with bold new ideas can however be high risk- the Government therefore incentivises attractive array of tax reliefs…
- Income Tax Relief – 30% upfront Income Tax relief. There are no exclusions to this tax break and it can also be spread across the current and previous year’s income tax bill. This is called a “carry-back” and it allows the investor to use any surplus income tax relief for the previous year if the current year’s income tax is reduced to zero;
- Capital Gains Tax (CGT) Deferral – an investor can defer capital gains realised on a different asset, where disposal of that asset was less than 12 months before the EIS investment or less than 36 months after it. This relief is limited to the amount being invested into the EIS and can be claimed by investors whose interest in the company does not exceed 30%. Where gains arise on the EIS investment, taper relief is available;
- CGT Reinvestment Relief No CGT to pay on any gains made when the investment is realised after three years (five years for investments made before 6 April 2000), provided the EIS initial income tax relief was given and not withdrawn on those shares;
- Loss Relief – if EIS shares are disposed of at any time at a loss, such loss can be set against the investor’s capital gains or income in the year of disposal,
- Inheritance Tax Relief – shares do not form part of the estate for Inheritance Tax purposes, provided the investments have been held for at least 2 years at time of death and the company qualifies for Business Property Relief (“BPR”).
- Maximum subscription is currently £1,000,000 per investor per year, yielding a potential reduction in tax liability of £300,000 per annum (assuming the investor has sufficient income tax liability
The Seed Enterprise Investment Scheme (SEIS) targets seed and start up companies less than two years old for investments of up to £150,000, capping the maximum that can be invested in any tax year at £100,000. The investor benefits from all of the EIS tax breaks, with the exception that – as the scheme focuses on higher risk start-up investments – the initial relief is a highly attractive 50%.
We can apply for SEIS and EIS Advance Assurance from HMRC which will help you raise funds for your business –contact Lisa Entwistle firstname.lastname@example.org for further information.