The IoD (Institute of Directors) are calling on the government to help encourage more investment in small to medium sized businesses and start-ups. Many of their members are simply unaware of the tax relief available to incentivize an investor into putting money into SME’s.
We have been helping our clients raise investment using the EIS (and SEIS) tax reliefs for a number of years now. According to the IoD, less than 38% of their members have heard of these reliefs, many of whom are directors of companies that could potentially use the schemes and benefit from them.
Have a look at our free guide if, like the IoD members, you are wondering what the benefits of EIS & SEIS relief are. We’ve also set out a summary of how the tax relief works below.
EIS (Enterprise Investment Scheme) tax relief is given as follows:
- Income tax reduction of 30% x the amount invested (to a maximum of £1,000,000), or the complete tax liability for the year if lower;
- Relief is given for the tax year in which the investment is made, however it can be carried back one tax year if the shares are issued and subscribed for before 6 October in the tax year.
- Capital Gains Tax Deferral Relief can also be claimed for any gain made by an investor during the period one year prior to or three years after the year of qualifying investment. On disposal of the EIS shares any deferred gain will be fall back into charge.
Capital gains arising in respect of the EIS investment shares will be exempt upon sale.
There is provision for loss relief should the EIS shares prove to be worth less than the original subscription price, but relief will be limited to the amount of the investment less any income tax relief obtained.
This means that for an individual liable to income tax at the highest rate of 45% the maximum exposure is as follows:
|Less: Tax Relief @ 30%||(£30,000)|
|Total real cost||£70,000|
|Loss relief at 45%||£31,500|
|Actual Funds Lost||£38,500|
Finally, true maximum risk to capital is 38.5% of amount invested.