To encourage investment in UK businesses, the government has introduced generous tax relief schemes for investors. The conditions required to qualify for tax relief and the way in which it is given vary.
Investor reliefs
Helping you grow your business
Small businesses tend to find it difficult to raise funds because of their size, balance sheet and exit opportunities. For this reason, many institutional investors tend to shy away from these types of investments and these businesses also find it difficult to get support from the banks. To support small businesses trying to raise funds, the UK Government introduced a number of different investment reliefs to help boost businesses. We can help compile and submit all necessary documents so you can demonstrate to prospective investors that your companies qualifies for EIS or SEIS relief.
Enterprise Investment Scheme (EIS)
The EIS performs a vital function in supporting entrepreneurship, encouraging private investment into emerging and growing British businesses. It launched in 1994 and to date over 26,000 companies have benefitted and over £22 billion of funds have been raised making the UK the largest market for early stage investment in Europe, followed by the United States.
Seed Enterprise Investment Scheme (SEIS)
The SEIS was introduced in 2012 to complement EIS with a focus on smaller companies. SEIS offers tax relief at a higher rate than that offered by EIS to reflect the higher risk nature of investment in these businesses so different qualification rules apply. Since launch over 12,040 companies have received investment and over £1 billion of funds have been raised.
The Rules
What are some of the requirements TO CLAIM EIS?
For the
company
Using the Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme (EIS) offers tax incentives in the form of a variety of Income Tax and Capital Gains Tax reliefs to investors who invest in businesses using this scheme. Under EIS, businesses can raise up to £5 million each year, and a maximum of £12 million during the business’ lifetime. This includes amounts received from other venture capital schemes.
Want to raise capital and apply for EIS? We'll help you file all the necessary documents.
Do you employ fewer than 250 full time staff?
Have you been trading for less than seven years?
Are you a UK, private and unlisted business?
Do you have less than £15 million in gross assets
No other company must own more than 50% shares of your company
Do you plan to use the money raised on a qualifying purpose within two years from the issue of the shares
Alternatively, two years from the date the company begins to carry on a qualifying trade?
Do you carry out a trade that qualifies?
Most trades qualify unless they are in energy production, farming, legal or financial services and property development. Click here for a full list.
For the
investor
Investing in the Enterprise Investment Scheme (EIS)
The Seed Enterprise Investment Scheme (SEIS) offers some of the best tax reliefs for investors in the form of a variety of Income Tax and Capital Gains Tax reliefs. Under EIS, businesses can raise up to £5 million each year, and a maximum of £12 million during the business’ lifetime. This includes amounts received from other venture capital schemes.
Thinking about using EIS to minimise your tax bracket exposure?
You can only invest up to a maximum of £2 million into qualifying companies each tax year
Usually £1m but £2m if at least £1m of that is invested in knowledge-intensive companies.
To benefit from the tax reliefs you must hold the shares for a minimum of three years
If you claim tax relief on a share and sell it before the three year period, you will be subject to clawback on any relief given.
Investor does not need to be a UK resident but must have a UK income tax liability against which to set the relief
You must not be connected to the EIS company (paid director, partner or employee)
Unless you are a Business Angel
Cannot hold more than 30% of the company with your 'associates'
Associates are business partners, spouses, lineal relatives but not siblings
What are the benefits
For enterprise investment scheme investors (EIS)?
Investing in early-stage businesses can be risky. These companies tend to be small, and the invested capital is tied up for many years. Often there are also no clear exit opportunities. To encourage investors to support small businesses in the EIS , the UK Government introduced tax incentives in the form of a variety of Income Tax and Capital Gains Tax reliefs.
You can claim back up to 30% of the value of your investment in the form of an income tax relief
For example, if you made an investment of £1,000, you can save £300 in income tax with a cap of £2m per tax year.
EIS Loss Relief
Startup investment is considered a high-risk asset class, therefore there is a chance the value of your investment can decrease over time. If you lose money on your investment, you may claim loss relief, which is equivalent to your income tax bracket.
EIS Inheritance Tax Relief
After holding EIS shares for at least two years, you are eligible to claim Inheritance Tax relief of 100%, which is much shorter than the 7 years required by some other asset classes.
EIS Capital Gains Tax relief - disposal relief
If you hold the shares for at least three years, then you may not need to pay Capital Gains Tax on your investment gains. For example, if you bought shares for £1,000 and over three years they increased in value to £3,000, you will pay no capital gains tax on your £2,000 gain when you sell.
EIS Capital Gains Tax relief - deferral relief
You will not have to pay Capital Gains Tax if you reinvest the gains into a company that qualifies for EIS. You will still have to pay Capital Gains Tax when you dispose of the EIS shares at a later date.
The Rules
What are some of the requirements to claim seis?
For the
company
Using the Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) can help your company grow in the earliest stages of your business. It’s similar in structure but is targeted at smaller companies – with gross assets of up to £200,000 and fewer than 25 employees.
Want to raise capital and apply for SEIS? We'll help you file all the necessary documents.
Have you got gross assets of less than £200,000 at the time the shares are issued?
Do you employ fewer than 25 full time staff?
Have you been trading for less than two years?
Are you a UK, private and unlisted business?
Are you planning to use the money raised within three years of the date of the relevant share issue?
Not have raised any money from EIS or VCT investors
Your company can only receive a maximum of £150,000 through SEIS investment in its lifetime
Have you carried out business activity for at least four months?
Do you carry out a trade that qualifies?
Most trades qualify unless they are in energy production, farming, legal or financial services and property development. Click here for a full list.
For the
investor
Investing in the SEED Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) offers some of the best tax reliefs for investors to reflect the higher-risk nature of investments in these businesses. The benefits are given in the form of a variety of Income Tax and Capital Gains Tax reliefs.
Thinking about using SEIS to maximise your tax relief?
You can only invest up to a maximum of £100,000 into qualifying companies each tax year
If you want to invest more than that amount, you may wish to consider investing through the Enterprise Investment Scheme (EIS).
To benefit from the tax reliefs you must hold the shares for a minimum of three years
If you claim tax relief on a share and sell it before the three year period, you will be subject to clawback on any relief given.
Investor does not need to be a UK resident but must have a UK income tax liability against which to set the relief
You must not be connected the company
However, a director is not treated as a connected individual and can invest (contrary to the EIS scheme)
Cannot hold more than 30% of the company or subsidiary with your 'associates'
Associates are business partners, spouses, lineal relatives but not siblings
What are the benefits
For Seed enterprise investment scheme investors (sEIS)?
You can claim back up to 50% of the value of your investment in the form of an income tax relief
For example, if you made an investment of £20,000, you can save £10,000 in income tax with a cap of £2m per tax year.
SEIS Loss Relief
Startup investment is considered a high-risk asset class, therefore there is a chance the value of your investment can decrease over time. If you lose money on your investment, you may claim loss relief, which is equivalent to your income tax bracket.
For example, if your income tax rate is 45% and you make a £20,000 investment but the business fails, you could claim 50% income tax relief, which would be £10,000. For the remaining £10,000, you can claim 45% income tax relief. This would mean your total loss is only £5,500 as opposed to £20,000.
SEIS Capital Gains Tax relief - disposal relief
If you hold the shares for at least three years, then you may not need to pay Capital Gains Tax on your investment gains. For example, if you bought shares for £1,000 and over three years they increased in value to £3,000, you will pay no capital gains tax on your £2,000 gain when you sell.
SEIS Reinvestment Relief
You can defer capital gains earned on disposal of any other assets as long as you reinvest it into EIS/SEIS shares.
SEIS Inheritance Tax Relief
After holding SEIS shares for at least 2 years, you are eligible to claim Inheritance Tax relief of 100%, which is much shorter than the seven years required by some other asset classes.
