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The Enterprise Investment Scheme (“EIS”) is a government scheme that provides a range of tax reliefs for investors who subscribe for shares in qualifying companies.
The following changes have been enacted as law with effect from 6 April under the Finance Act 2012 to encourage investment in growth companies:
1. The amount of investment for which investors may claim income tax relief each year has been raised from £500,000 to £1 million.
2. The amount of EIS and Venture Capital Trust (“VCT”) investment that may be made in a qualifying company over a 12 month period has been increased from £2 million to £5 million.
3. EIS and VCT qualifying companies may now have up to 250 full time employees (up from 50) and gross assets of up to £15 million (up from £7 million) or £16 million after investment (up from £8 million).
The Finance Act 2012 has also introduced the Seed Enterprise Investment Scheme (“SEIS”) with effect from 6 April to stimulate investment in new businesses. The basic rules are as follows:
1. SEIS investors will be entitled to 50% income tax relief on investments of up to £100,000 in qualifying companies (provided they are not employees and do not own more than 30% of the share capital of any qualifying company) in a single tax year.
2. There will be a capital gains tax (“CGT”) holiday for the first year (i.e any gains realised on the disposal of assets in 2012/13 that are re-invested through SEIS in the same year will be exempt from CGT).
3. Qualifying companies must carry on, or be preparing to carry on, a new business (SEIS investment must be made within 2 years after commencement of trading) in a qualifying trade (not finance or property), have a permanent establishment in the UK, have fewer than 25 employees and have gross assets of less than £200,000 (before investment).
4. Qualifying companies may receive SEIS investment of up to £150,000 provided they have not already received EIS or VCT funding. Qualifying companies may, however, obtain EIS or VCT funding after at least 70% of any SEIS monies have already been spent.
5. Qualifying companies must satisfy SEIS eligibility criteria on an ongoing basis for 3 years in order for investors to benefit from tax relief. If shares in qualifying companies are sold after they have been held for at least 3 years, any gain will be free from CGT.
It should be possible to get “advanced assurance” from HM Revenue & Customs to give comfort to investors about potential SEIS/EIS tax relief before any shares are issued.
For more information please contact Andrew Bretherton at Candey LLP on 020 3328 7779 or firstname.lastname@example.org.
Andrew Bretherton, Candey LLP
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