Budget hopes from UK VC fund manager for investors and SMEs are realised as SEIS is now a permanent funding option for start-ups:
“Small to Medium Enterprises (SMEs) can breathe a sigh of relief as George Osborne backed up his support for them by continuing the coalitions’ tax incentives for private investors seeking investment opportunities via Enterprise Investment Schemes (EIS) and, most importantly Seed EIS (SEIS). In addition, the government has made it clear that such incentives are not provided for low risk investments which already receive government subsidy.”
With a growing entrepreneurial culture and an innovative work force, particularly in key sectors such as digital media, gaming and e-commerce, the continued support of the chancellor and prime minister for this community will help to ensure stability for these sectors.
George Osborne has used this budget to not only endorse SMEs, but has taken the opportunity to give a strong message of support to the next generation of entrepreneurs within the UK by making the Seed Enterprise Investment Scheme permanent.
We’re delighted that the government has:
(i) continued to provide investors attractive tax breaks for supporting growing British businesses
(ii) made SEIS permanent, ensuring long term support for early stage investment in the UK
(iii) confirmed their intention to explore a general change to prevent EIS, VCT and SEIS schemes also benefitting from income guarantees via government subsidies; this has already started by implementing an exclusion on providing EIS, SEIS or VCT relief to any companies receiving Renewable Energy Obligation Certificates (ROCs)
These valuable investment structures (SEIS & EIS) have brought in excess of £1 billion in investment capital in 2013 into businesses starved of capital from sources such as bank finance and it is great to see them remain.”
Government tax reliefs for EIS investors include:
income tax relief of 30 per cent on individual investments – so a £100 investment effectively costs just £70
gains are paid free of capital gains tax once shares are held for at least three years
CGT deferral relief – the payment of tax on a capital gain can be deferred when invested in shares of an EIS qualifying company
capital loss relief of up to 45 per cent for a higher rate tax payer, which can be counted back up to three years
inheritance tax relief as EIS shares attract business property relief (BPR) after two years.
Tax efficient benefits for the SEIS investor:
50% income tax relief may be claimed against income tax paid or payable in relation to the tax year 2014/15 on total investments up to £100,000 per investor.
Alternatively an investor can opt to treat an investment as having been made in the 2013/14 tax year, in whole or in part, such that 50% tax relief is available against income tax paid or payable for that year.
Capital gains tax exemption – Gains on sales of other assets that are realised in 2013/14 and invested in SEIS shares will qualify for a 50% exemption if a 2014/15 investment is carried back and treated as having been made in 2013/14.
Tax free capital gains – There is no capital gains tax liability on gains on the disposal of shares which have been held for at least three years in SEIS qualifying companies.
100% inheritance tax exemption – Through the availability of BPR, there may be 100% inheritance tax exemption on the death of the investor (or on certain lifetime transfers) for each individual investment that has been held for at least two years.
Loss relief – Loss relief (providing total tax relief of up to 86.5%, if all available income and capital gains tax reliefs are claimed). A loss on any qualifying investment in the portfolio, irrespective of the overall performance of the portfolio, can be offset by individuals against income of the tax year of the loss, or the previous year, or against capital gains of the tax year of the loss and future years.