Investments

Investments

Seed Enterprise Investment Scheme (SEIS)

The SEIS was introduced for a limited five year period from 1 April 2012. The SEIS has now been made permanent, with the income tax and capital gains tax reliefs applying as shown below for all future years.

At a glance

The Enterprise Investment Scheme (EIS) provides tax incentives in the form of a variety of income tax and capital gains tax reliefs to investors who invest in smaller, unquoted, trading companies.

  • The primary tax relief takes the form of a reduction in Income Tax at a flat rate of the cost of new shares.
  • Tax relief increased from 20% to 30% on 6 April 2011.
  • There is no minimum amount an investor can invest in any one company (prior 2012/13 this was £500); however there is a maximum investment of up to £1 million from 2012/13 (£500,000 2008/09 – 2011/12).
  • The maximum amount of investment that a qualifying company can receive is limited to £5 million.

The Finance Act 2012 introduced the Seed Enterprise Investment Scheme (SEIS): a scheme like EIS but for start-ups.

What’s new from 6 April 2015?

  • Part 6 of ITA 2007 extends the list of excluded activities to include companies (excluding community organisations) where the trade consists of the subsidised generation of electricity involving:
    • a) contracts for difference and
    • b) renewable sources where anaerobic or hydroelectric power is involved.
  • CGT Entrepreneurs’ Relief will now be allowed where a qualifying gain, which has been deferred into investments qualifying for Enterprise Investment Relief (EIS) and Social Investment Tax Relief (SITR), is subsequently realised.
  • The requirement that 70% of SEIS money has to be spent before EIS or VCT shares or securities can be issued is abolished.
  • SITR investments now count as ‘relevant investments when considering the £5 million annual limit for the company.

Further changes were announced, and confirmed at the Summer Budget 2015, which will take effect from the date of Royal Assent of the Summer Finance Bill 2015, once the proposed legislation receives EU State Aid approval, including:

  • A lifetime limit for the issuing company will be introduced to cap the maximum amount it can raise under the venture capital schemes. This limit will be £12 million for most companies, but there will be an enhanced £20 million for ‘knowledge intensive’ companies.
  • EIS relief will not be available for share issues in companies which have been trading for more than 7 years (10 for knowledge intensive companies), unless:
    • a) There has been a previous issue of shares under EIS/VCT/SEIS
    • b) There has been a fundamental change in the nature of the business
  • The maximum number of employees will increase to 499 (previously 249) for ‘knowledge intensive’ companies.
  • A restriction on existing shareholders claiming relief will be introduced, and going forward an existing shareholder will only be able to claim relief if all of the existing shares:
    • a) Were issued under EIS, SEIS or SITR
    • b) Are subscriber shares (i.e. the original shares issued on incorporation)
  • EIS/VCT will no longer be able to be used to fund the acquisition of an existing company or trade.

Venture Capital Trusts (VCTs)

Investing in VCT shares gives the taxpayer 30% income tax relief on up to £200,000 invested per tax year, and the shares are generally exempt from capital gains tax when sold. However, the Government thinks that VCTs have been abused, so the following changes will be made from 6 April 2014:

  • tax relief is withdrawn if the shares are disposed of within five years;
  • the VCT will not be permitted to return capital to its members within three years of the shares being subscribed for; and
  • VCT investments that are linked to share buy-backs will be denied tax relief.