Are UK investors really keen?..
Every investor has something, which is called “risk capital”. Investing in companies is often risky. However, the tax incentives available under certain schemes can often turn a risky venture into a tax efficient opportunity.
The enterprise investment scheme (EIS) has been around for years and is an efficient method of investment. The rules are complex and the comments below are only a high level summary as advised by our partners Smith and Williamson who are experts in this field. This is to give you a good idea and should not be taken as specific advice as all prospective investors should seek their own professional advice.
Is your company eligible for EIS?
The company must be a trading company carrying on qualifying activities. There are also a number of other criteria. In summary, these are broadly as follows.
- The gross assets of the company (or group) must not exceed £15m immediately before investment and £16m immediately after.
- The company must have fewer than 250 full-time employees at the time of the proposed investment.
- A maximum of £5m from all venture capital schemes can be raised in any rolling 12 month period.
- The company must not be ‘in difficulty’.
- The company must be unquoted (this includes AIM-listed companies).
- The investment must be into newly issued ordinary shares.
- The company needs a UK fixed place of business and must not undertake an excluded trade (property development, dealing companies, insurance and banking, legal and accountancy, to name but a few).
- Another company cannot control the company.
The incentives for investor..
In summary the key incentives for the 2013/14 income tax year are:
- 30% income tax relief, set off against your income tax liability
- One year carry back of the income tax relief
- Capital gains tax exemption on the disposal of the shares
- Tax on other gains can be deferred against the amount invested in EIS shares (normally until the shares are disposed of). Additionally, if the shares were to be sold at a loss, the capital loss (less the income tax relief already given) would be available to offset against income in the current and/or prior tax years. The shareholding should attract business property relief at 100% for inheritance tax purposes after a period of two years’ ownership.
How does it work?
- The investor must be an individual in order to qualify for EIS income tax relief. Furthermore, to qualify for the capital gains deferral relief the individual must also be UK resident and ordinarily resident. The following criteria (again for the 2013/14 income tax year) must also be met.
- The individual cannot be connected with the company invested in for a five-year period (starting two years before the share issue and ending three years after the issue or commencement of trade)
- Any holding (including associates) must not equate to more than3 0% of the ordinary share capital, total shares, voting rights or assets available for winding up
“If the shares are retained, the shareholding should attract business property relief at 100% for inheritance tax purposes.”
Not for the faint hearted..
This is not for the risk-averse. However, it is ideal for those individuals who have excess cash and are subject to the higher rate of tax or even the additional tax rate of 45%. It is also suitable to those with gains carrying large liabilities and who would benefit from a deferral.
If your company qualifies for the EIS scheme, we can connect you with our partners at Smith and Williamson for some expert advise. Kindly email info@entrevo.com with details of your company such as years in business and the current turn over. For a faster response please add the subject: “An introduction for EIS”. If you are looking to invest in companies that qualify under EIS, please add the subject: “Looking to invest in EIS”.
Darshana Ubl
CEO | Entrevo UK
www.darshanaubl.com
About Entrevo..
Entrevo Ltd is a training and development company, which has its operations in UK, USA, Singapore and Australia. Its core product is the Key Person of Influence Programme and the Entrepreneur Brand Accelerator events focusing on owner led businesses. Find out more on: www.keypersonofinfluence.com/uk