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Tax savings for investing in new businesses.
by Ross Welland on 10 February 2012
Once again the Government is trying to help the economy and new businesses with a scheme to encourage investment in new businesses, but the qualifying criteria are pretty complex!
So here’s some brief details about the new Seed Enterprise Investment Scheme (SEIS)
Details:
- Starts on 6 April 2012
- An individual can claim income tax relief at 50% on an investment of up to £100,000 in a tax year, and for investments in 2012/13 only may be able to shelter capital gains on other assets.
- The relief reduces tax liability, but cannot create a repayment It’s for investment in stand alone companies, with gross asets of £200,000 or less, which have been incorporated for two years or less when the SEIS shares are issued.
- The company can’t receive more than £150,000 in total from SEIS investment.
- Its got to be carrying on a ‘qualifying trade’, (not property development, retail distribution, hotels, nursing homes and farming for example)
- The trade must be carried on for three years after the shares are issued, otherwise the relief may be withdrawn.
As with all Government schemes as well as the qualifying rules, there is a raft of anti-avoidance measures to prevent abuse of the scheme including:
- the investor can be a director of the company but cannot be an employee without being a director.
- the investor must not directly or indirectly control more than 30% of the share capital.
- the company must not acquire assets from an existing trade in which the investor has some involvement.
- the company cannot pass value of any kind to the investor unless on an arm’s length commercial basis.
As with a lot of Government schemes, SEIS will only work in limited cases. In practical terms its probably not going to encourage many more people to invest but may just tip the scales on investment decisions for some investors. The issue for investors is always going to be is the investment a sound one with tax relief being very much secondary. If a business needs a greater level of investment than that permitted under this scheme then an Enterprise Investment Scheme could still be the best way to proceed.
You can read a Daily Telegraph Article for some other views on the scheme.
It will be interesting to see how much take up there is in this scheme over the coming 12 months. What do you think?
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