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:
- Enterprise Investment Scheme (EIS)
- Venture Capital Trust Scheme (VCT)
- Seed Enterprise Investment Scheme (SEIS)
- Social Investment Relief (SIR)
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.
If you would like to arrange a meeting to discuss this matter, or would simple like more information, please get in touch:
Phone: 0141 643 9200
Pension and investment advice will be given by our sister company, ad+ Financial, which is regulated by the FCA.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
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