Tax breaks for EIS and SEIS company investors
Tax Breaks for EIS Company Investors
Investors who are not connected with the company may claim income tax relief of 30% of the amount that they invest in qualifying EIS companies up to £1 million each tax year (or up to £2 million if at least £1 million of that is invested in knowledge-intensive companies). Thus, a £10,000 investment would result in a £3,000 reduction in the investor’s income tax liability.
The connected persons tests are complicated. For example, directors cannot claim EIS tax relief if, at the time the shares are issued, they are a paid director of the company – unless the payment is a ‘permitted payment’. They may, however, become a paid director after their investment under the ‘business angel’ rule.
Provided the shares are held for at least 3 years, the income tax relief is retained and any gain on disposal of the shares would be exempt from capital gains tax.
It is also possible to defer capital gains on any asset disposal by reinvesting the gain in qualifying EIS shares.
Tax Breaks for SEIS Company Investors
Investors who are not connected with the company may claim income tax relief of 50% of the amount that they invest in qualifying SEIS companies, up to £150,000 in each tax year. Thus, a £10,000 investment would result in a £5,000 reduction in the investor’s income tax liability.
The connected persons tests are complicated and similar to the EIS rules; however, directors can claim SEIS tax relief.
Provided that the shares are held for at least 3 years, the income tax relief is retained and any gain on disposal of the shares would be exempt from capital gains tax.
A further relief for SEIS investors is that 50% of the amount invested may be set against capital gains that year. Thus, a £10,000 investment would mean that the investor could deduct £5,000 from their capital gains that year in addition to the £5,000 reduction in their income tax liability.
Please talk to us about SEIS or EIS schemes for your business.
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