Yes. The main tax incentives are available for investments into companies, so if your business is not yet incorporated you may wish to take this into account in deciding how to take your structure forward.
The principal reliefs to mention for companies are the enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS). Both offer investors relief against their UK income tax liability and the prospect of exemption from UK capital gains tax (CGT) on exit.
The rate of relief differs between the two schemes the SEIS is targeted at smaller ‘start-up” companies and offers relief at 50 per cent of the amount invested, up to a maximum of £100,000 per tax year. The EIS is aimed at larger consolidation” companies and offers relief at 30 per cent of the amount invested, up to a maximum of £1m per tax year.
For example, an investment of £50,000 in a company qualifying for SEIS relief will entitle the investor to a deduction of £25,000 from their income tax liability for the tax year. The relief can in some circumstances be split across the tax year of investment and the previous tax year.
For the 2012/2013 tax year only, if an investor sells an asset at a capital gain, that gain is exempt from CGT to the extent that the disposal proceeds are ?matched to an SEIS investment. So, if an investor sells a property in June 2012 and invests £50,000 in a SEIS company in February 2013, £50,000 of any gain from the sale is exempt from CGT. This is in addition to the income tax relief above, so in effect 78 per cent of the cost of the investment is met by tax savings.
A number of conditions must be met for SEIS or EIS relief to be available. Broadly, relief is only given to investors that are not connected to the company and is not generally available for employees or officers (although SEIS relief is available for directors). The company must meet certain conditions SEIS relief is only available for investments in very small companies by assets and employees; the thresholds for EIS are less stringent and larger companies may qualify.
In addition, certain conditions have to be satisfied for a period of three years after the investment (otherwise the tax relief may be clawed-back” in whole or part). Advice should always be sought to check that conditions are met.
Rob Young is a Partner at International Law Firm Taylor Wessing. Read further information on SEIS and EIS here.