The Enterprise Investment Scheme has been around since April 2009, helping small higher risk trading companies raise finance by providing incentive to investors by way of tax reliefs. However there is a new scheme called the Seed Enterprise Investment Scheme (SEIS) that will come into effect this month that offers much greater reliefs and both schemes can be used in conjunction with one another.
If you started a new company or trade less than 2 years ago, then you are eligible for the scheme which provides the investor with 3 separate reliefs:
- Income tax relief at 50% (no matter what rate taxpayer you are).
This is very generous; however there are several conditions that must be met. The investor can’t be an employee, associate, or own a substantial interest in the company. There is also an annual limit of £100,000 and the tax relief can’t be raised until 70% of money raised has been spent on business activities.
- Gains on disposal of shares in the company will be exempt of CGT provided the disposal is 3 years after shares have been issued.
- In 12/13 only: Gain arising on any chargeable asset in that year will be exempt from tax as long as it is invested in SEIS shares. The only condition here is that the amount invested has to be equal to the gain achieved.
As you can see there are several conditions that need to be met but providing they are, the benefits are substantial. For instance the combined effect of 1 and 3 can provide a tax relief of 78% in the first year of the scheme’s operation alone. This is one of the reasons there is a limit on investment of £150,000 per company. However, once this limit has been reached investors can still take advantage of the Enterprise Investment Scheme (EIS) that provides income tax relief at 30%, claimed up to a maximum of £1m invested in EIS shares.
If you would like to learn a bit more about the scheme, please get in touch at [email protected] and we will send you a Numbergeek information pack.