Submitted by Sestini & Co
| on Thu, 05/05/2016 - 15:48 | In Investment
Enterprise Investment Scheme
Designed to stimulate investment in businesses that aren’t listed on a stock exchange, the Enterprise Investment Scheme (EIS) was launched in 1994 and offers income tax relief and capital gains relief to encourage investment in opportunities that may be seen as riskier.
EIS investment provides income tax relief at the time of investment, at 30%.
The tax benefits go beyond those immediately related to the investment in the company – on making an EIS-qualifying investment, it becomes possible to also defer capital gains tax liability on an asset sold in the previous 36 months or the 12 months following the investment.
As an example, if John, a higher rate tax payer, plans to sell a property for £275,000 with a capital gain of £65,000 then £50,000 of the taxable gain can be deferred until the EIS investment is sold. Whilst this is not an absolute tax saving, it does provide a deferral of up to £14,000 of capital gains tax which means that more funds can remain invested.
You can invest a maximum of £1 million under EIS in a single tax year.
Seed Enterprise Investment Scheme
There’s also a recently-launched option which could be of interest. Launched in 2012, the Seed Enterprise Investment Scheme (SEIS) is designed to encourage investment in companies under two years old, with fewer than 25 employees.
It could be more advantageous as it provides an element of capital gains tax exemption up to 50% of the amount invested.
On a £50,000 SEIS investment, the income tax savings would be £25,000 and the capital gains tax savings could be up to £7,000. The net cost of the £18,000 SEIS investment would therefore be £18,000.
You can invest a maximum of £100,000 under SEIS in a single tax year. This can be spread over a number of companies.
Capital gains tax on sale of shares
There is no capital gains tax to pay on the sale of EIS or SEIS shares.
Five things you need to know
1. To qualify for the reliefs described above you need to hold EIS/SEIS investments for at least three years
2. The investee company needs to adhere to strict qualification criteria to ensure you retain your tax relief, so you should invest via a reputable business who manage the EIS/SEIS application and the ongoing administration
3. EIS and SEIS qualifying investments also meet the criteria for business property relief for inheritance tax purposes
4. Post-investment the investee company will issue you with an EIS3 certificate which provides the information you need to complete your self-assessment return
5. You can find investment opportunities under the SEIS scheme at seis.co.uk
If you would like to discuss any of the points detailed above call us on 01761 241861 or email us on firstname.lastname@example.org. We would be pleased to advise you or to invite you into our offices in Paulton, between Bristol and Bath.