A number of Government approved investment schemes are available to encourage private individuals to invest in smaller high risk unquoted trading companies, and now in social enterprises. Various tax reliefs are available to encourage investment.
Here we provide a round-up of your options.
All the schemes have detailed rules on qualifying investors, the investment vehicle and type of investment. The schemes are:
Depending on the scheme, you may be able to take advantage of these incentives:
Income tax relief
A qualifying investment of up to £1 million, depending on the scheme, reduces the investor’s tax liability for that year. In some cases, claims can be made to carry back this relief to the previous tax year, if you have insufficient tax liability in the current year.
Income tax relief is 30% of the qualifying investment, except SEIS which is 50%. The investments must generally be held for three years, except VCT which requires five years.
Capital gains and losses
Any capital gain on disposal of a qualifying investment (held for three years) will generally be exempt. If your investment is disposed of at a loss, the loss will be allowable but generally reduced by any income tax relief you claim. There is no minimum ownership requirement for VCT shares to qualify for capital gains tax (CGT) exemption but losses are not allowable.
Capital gains deferral relief
A gain on the disposal of any asset can be deferred by investing it directly in a qualifying EIS or SIR. This relief is not available for VCT or SEIS investments. The deferred gain generally becomes chargeable when the qualifying investment is disposed of. However, for qualifying SEIS investments a relief exists which exempts
50% of gains up to a maximum reinvestment limit of £100,000 (i.e. £50,000).
Any other income from the investment schemes is taxable, with exemption for dividends on ordinary VCT shares.
Published by Arram Berlyn Gardner LLP ABG Times May 2015
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