Tax breaks for investors

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There are currently three types of investment vehicle that provide investors with a measure of tax relief.

1.      Seed Enterprise Investment Scheme (SEIS)

The SEIS is designed to increase the level of investing in the early development of high growth potential businesses. The scheme is similar to the EIS but focuses on smaller, early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade. The SEIS applies to shares issued on or after 6 April 2012.

The scheme provides income tax relief worth 50% of the amount invested to qualifying individual investors on a maximum annual investment of £100,000. The scheme also offers an exemption from CGT on gains on shares within the scope of the SEIS. The use of the SEIS in 2012-13 could therefore result in tax relief of up to 78%.

2.     Enterprise investment scheme (EIS)

Income tax relief is available at 30% (20% for shares issued before 6 April 2011) on new subscriptions by individuals for eligible ordinary shares in qualifying unlisted trading companies (including shares traded on the alternative investment market (AIM)) satisfying the conditions of the EIS scheme.

  • The maximum amount qualifying for relief in a single tax year is £1,000,000 (£500,000 for 2011-12)
  • Unlimited capital gains arising from the disposal of other assets can be deferred by investment info the EIS, provided the EIS investment is made in the period starting 12 months before the date of disposal and ending 36 months after.
  • A capital gain on disposal of the shares after the minimum holding period will be exempt from CGT provided that EIS income tax relief has been retained. Capital losses may generally be relieved against either capital gains or taxable income.
  • EIS investments may qualify for inheritance tax (IHT) business property relief.

3.     Venture capital trusts (VCTs)

VCTs are quoted companies similar in concept to investment trusts. Income tax relief is available at 30% on new subscriptions for ordinary shares in VCTs by individuals aged 18 or over. The maximum amount qualifying for relief is £200,000 in each tax year.

If you are interested in more information on this topic, please do give me a call.

Sue Stephens, Personal Tax Consultant