In this guide, we examine the three main types of investment available: EIS, SEIS and funding from VCTs, which can be an important source of financial support for smaller businesses. Social Investment Tax Relief (SITR) is not covered here.
Under the EIS and SEIS, individuals invest directly in unquoted trading companies. Under the VCT scheme they invest in a quoted vehicle whose managers invest funds in such companies (‘investee’ companies).
These three schemes have some characteristics in common but a number of important differences. The appendix in the PDF provides a comparison between them.
The reliefs that investors are likely to be most interested in are:
- Income tax relief on investment
- Capital gains tax (CGT) relief on sale of EIS/SEIS/
- VCT shares
- CGT exemption on other gains by re-investing in a
- EIS company
- CGT deferral under EIS
- Tax-free dividends on VCT shares
- Inheritance tax (IHT) relief under EIS and SEIS.
This guide is based on legislation and information available as of September 2017. It summarises various tax advantages for investment in companies. Anyone contemplating any kind of investment should not be swayed unduly by tax considerations and should first consider, after taking appropriate professional advice, whether the proposal makes commercial sense.
The levels and bases of, and reliefs from, taxation can change and the value of a relief depends upon the individual circumstances of the investor. This guide is only a brief summary of complex tax legislation and detailed tax advice should always be taken.
You should be aware that investing under an EIS, SEIS or in a VCT carries certain risks and you could lose a substantial proportion, or all, of your investment. The risks are highlighted in the prospectus or other investment documentation for each issue, which you should read carefully. As stated above, it is important to obtain detailed advice before taking any action.
With tax relief options on income tax, CGT andIHT, the EIS and SEIS could be the last of the great tax breaks.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.