Tax Relief on Investment – SEIS, EIS, VCT & SIR
Save tax with the new Government investment schemes! You can reap a range of tax relief opportunities, ranging from income tax relief of up to 50% to reinvestment relief with 50% exemption on capital gains.
A number of Government approved schemes are available to encourage private individuals to invest in smaller, high-risk unquoted trading companies and with effect from 2014/15, in social enterprises.
In order to encourage investment there are a number of tax relief opportunities available. These differ depending on which scheme you have invested in.
The schemes are as follows:
- Seed Enterprise Investment Scheme (SEIS)
- Enterprise Investment Scheme (EIS)
- Venture Capital Trust Scheme (VCT)
- Social Investment Relief (SIR)
This article will provide a brief overview to the tax relief incentives available through EIS, VCT, SEIS and SIR. It is important to note that as each of these schemes have complex and detailed rules concerning qualifying investors, the investment vehicle and type of investment further advice should be taken from us to ensure these conditions are complied with before making the investment.
A qualifying investment ranges from £100,000 to £1m, depending on the scheme and can reduce an investor’s tax liability for the tax year. In some cases a claim can be made to carry back the tax relief to the previous year which can be useful where there is insufficient income tax liability in the current year. The income tax relief available is 30% of the qualifying investment with the exception of SEIS, which is 50%. In order to retain this relief the investments generally have to be held for three years. This is extended to five years in the case of VCT investments.
Where the qualifying investments are held for three years, upon disposal, any capital gain will generally be exempt. If the investments are disposed of at a loss, the loss will be allowable, but this is reduced by any income tax relief claimed. There is no minimum ownership requirement for VCT shares to qualify for CGT exemption but losses are not allowable.
A gain on the disposal of any asset can be deferred where the gain is invested in a qualifying investment for EIS and SIR. This relief is not available for VCT or SEIS investments. The deferred gain generally becomes chargeable when the qualifying investment is disposed of (although certain other situations can also trigger the gain).
However, for SEIS a reinvestment relief exists. This exempts 50% of gains up to a maximum investment limit of £100,000 (i.e. £100,000 x 50%) when a qualifying investment is made.
Dividend (or other) income from the investment schemes are taxable with the exception of dividends on ordinary VCT shares which are exempt. For more information on business acquisitions, raising finance business disposals or any other aspect of corporate finance, please click here.
If you have any queries on the investment tax relief or would like advice on what the new Government investment schemes may mean for you, please get in touch.
It is strongly advised that you seek further counsel if you are considering taking advantage of one of these schemes.
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