30th September 2019

Following my previous blog which covered the key investment objectives of tax efficient investments this month I consider the tax incentives offered across three popular schemes. These are the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCT).

These investments are government initiatives designed to assist small to medium sized businesses. They achieve this by providing the tax incentives summarised below to investors in qualifying companies.

EIS SEIS VCT
Upfront Income Tax Relief Up to 30% Up to 50% Up to 30%
Annual limits 2018/19 £1m + carry back * allowed £100k + carry back allowed £200,000
Tax Free Exit Yes Yes Yes
Capital Gains Relief Up to 28% deferral ** Up to 14% saved  ** Nil
Tax Free Dividends No No Yes
IHT Free Yes (after 2 years) *** Yes (after 2 years) *** No
Share Loss relief Yes Yes No
Minimum Holding Period 3 years 3 years 5 years

*increased to £2 million for investments made on or after 06 April 2018 provided that any amount over £1 million is invested in “knowledge-intensive” companies

* *depending on the nature of the asset and the date of disposal

*** the value of the shares may qualify for 100% business relief (BR) from inheritance tax (after a minimum two-year holding period, unless the shares are “replacement business property”)

Tax treatment is dependent on the circumstances of each individual and may be subject to change in the future.

It should be noted the income tax relief is given as a tax reclaim, and it is therefore limited to tax paid or due. Income tax relief is available to investors who have a UK income tax liability against which to set the relief, although investors do not need to be UK resident.

The tax incentives can enhance the returns and help to mitigate some of the risk to investors’ capital. However, as these schemes invest in small often unquoted businesses they do represent a high risk to the initial capital invested. Any capital invested can go down as well as up and you may not get back the full amount invested. You should always seek independent financial advice prior to taking any action.

If you wish to discuss how any of the above relates to your circumstances, please get in touch and we will be happy to assist.

Barra Gorman APFS

Chartered Financial Planner