Small businesses tend to find it difficult to raise funds because of their size, balance sheet and exit opportunities. For this reason, many institutional investors tend to shy away from these types of investments and these businesses also find it difficult to get support from the banks.
We can help compile and submit all necessary documents so you can demonstrate to prospective investors that your companies qualifies for EIS or SEIS relief.
The EIS performs a vital function in supporting entrepreneurship, encouraging private investment into emerging and growing British businesses. It launched in 1994 and to date over 26,000 companies have benefitted and over £22 billion of funds have been raised making the UK the largest market for early stage investment in Europe, followed by the United States.
The SEIS was introduced in 2012 to complement EIS with a focus on smaller companies. SEIS offers tax relief at a higher rate than that offered by EIS to reflect the higher risk nature of investment in these businesses so different qualification rules apply. Since launch over 12,040 companies have received investment and over £1 billion of funds have been raised.
For example, if you made an investment of £1,000, you can save £300 in income tax with a cap of £2m per tax year.
Startup investment is considered a high-risk asset class, therefore there is a chance the value of your investment can decrease over time. If you lose money on your investment, you may claim loss relief, which is equivalent to your income tax bracket.
After holding EIS shares for at least two years, you are eligible to claim Inheritance Tax relief of 100%, which is much shorter than the 7 years required by some other asset classes.
If you hold the shares for at least three years, then you may not need to pay Capital Gains Tax on your investment gains. For example, if you bought shares for £1,000 and over three years they increased in value to £3,000, you will pay no capital gains tax on your £2,000 gain when you sell.
You will not have to pay Capital Gains Tax if you reinvest the gains into a company that qualifies for EIS. You will still have to pay Capital Gains Tax when you dispose of the EIS shares at a later date.
For example, if you made an investment of £20,000, you can save £10,000 in income tax with a cap of £2m per tax year.
Startup investment is considered a high-risk asset class, therefore there is a chance the value of your investment can decrease over time. If you lose money on your investment, you may claim loss relief, which is equivalent to your income tax bracket.
For example, if your income tax rate is 45% and you make a £20,000 investment but the business fails, you could claim 50% income tax relief, which would be £10,000. For the remaining £10,000, you can claim 45% income tax relief. This would mean your total loss is only £5,500 as opposed to £20,000.
After holding SEIS shares for at least 2 years, you are eligible to claim Inheritance Tax relief of 100%, which is much shorter than the seven years required by some other asset classes.
If you hold the shares for at least three years, then you may not need to pay Capital Gains Tax on your investment gains. For example, if you bought shares for £1,000 and over three years they increased in value to £3,000, you will pay no capital gains tax on your £2,000 gain when you sell.
You can defer capital gains earned on disposal of any other assets as long as you reinvest it into EIS/SEIS shares.
Before investors can make a claim, companies need to go through an application process with HMRC. We can help, your business:
If you would like to discuss the impact investing into SEIS or EIS projects has on your tax liability, get in touch.
