Resources Guides 08.12.16

Tech Factor: Tax breaks for start-ups

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)

These tax reliefs encourage investment in small, unquoted companies. In particular SEIS is geared towards smaller, riskier start-ups.

Both schemes are growing increasingly attractive as tax mitigation tools and are highly beneficial for investors. Up to 50% of the value of an investment is allowed as a reduction in an individual’s tax liability. This means that investors – typically angels – have an exposure of only 50% of their original investment. By taking further advice about structuring their investment, this exposure can be much less.

In addition, EIS and SEIS investments can be exempt from CGT after 3 years and inheritance tax (IHT) after 2 years – which means growth within these schemes is tax free. Also, capital losses are allowable.

The investments must be in ‘qualifying companies’, a definition that includes banking and finance sector companies and those dealing in land or shares.

So investing in a promising start up is now more attractive than ever – provided the company qualifies for either EIS or SEIS. Useful to note is that a company may be able to qualify for both the EIS and the SEIS.

However, investors beware!

Such investments can be illiquid and comparatively risky, so investors must be prepared to wait patiently for a return or, in a worst case scenario, lose their investment.

SEIS EIS
The maximum tax relief is 50% but the shares must be held for a minimum of 3 years to receive the full tax relief. The maximum tax relief on an EIS is 30% but the shares must be held for a minimum of 3 years to receive the full tax relief.
The annual maximum investment limit for individual is £100,000 with unused annual amounts able to be carried back to the previous year. The annual maximum investment limit for individual is £1m with unused annual amounts able to be carried back to the previous year.
Companies can only raise a maximum of £150,000 via SEIS. Companies can only raise a maximum of £5m annually via EIS.
Maximum of 25 employees to be eligible Maximum of 250 employees to be eligible
Maximum of £250k gross assets to be eligible Maximum of £15m gross assets to be eligible


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