- Up to 50.00 % income tax relief
- Maximum investments up to £200,000 per tax year
- Can carry forward and invest any unused allowance from last year
- No Capital Gains Tax after 3 years
- Inheritance tax free (via Business Property Relief) after holding SEIS shares for 2 years.
Venture Capital
Published / Last Updated on 17/05/2021
Venture Capital Explained
There are a number of tax incentives offered by the Government to encourage potential investors to invest in either deprived areas or to invest in companies that are younger and that need development capital to develop their business offering.
Types of Scheme for Tax Year 2024
1. Factfile: Enterprise Investment Scheme
Enterprise Investment Schemes were introduced by the Government to promote investment by offering a range of tax benefits for investors who subscribe for qualifying shares in qualifying companies.
Minimum investment: £500 per year
|
Feature |
EIS |
|
Income tax relief on initial investment |
30.00 % on investments up to £2,000,000.00 per tax year |
|
Minimum holding period to avoid tax relief clawback |
3 years |
|
Dividends |
Taxable (but profits usually retained, not distributed) |
|
CGT reinvestment relief |
Gains may be reinvested in an EIS up to three years after realisation or one year before. No limit. |
|
Capital gains on proceeds |
Nil (except for reinvested gain) |
|
IHT business assets relief |
Usually available after 2 years’ ownership |
Minimum term: 3 years
Investment Risk Profiles Available: High risk funds available
Changing funds and risk profile allowed: No
Moving to another company allowed: No
Life Insurance Included: No
Personal Tax Benefits:
- 30.00 % Income tax relief - provided it is held for 3 years and no more than a 30% interest in the company
- Carry Back tax relief - provided investment made before 6 October, can carry back 50% of investment to claim relief in previous year subject to a maximum of £50,000.
- Capital Gains tax free - No Capital Gains Tax payable on disposal of shares after three years provided the EIS initial income tax relief was given and not withdrawn on those shares.
- Capital Gains tax deferral - If the scheme does not qualify for being capital gains tax free, there is still the possibility to defer capital gains tax.
- Inheritance Tax Exemption - EIS Investments are exempt from Inheritance Tax after two years of holding such investment.
- Loss Relief - investment losses can be offset against other gains
Can be held inside Trust: No
Suitable For:
- Adults
- Basic Rate Tax Payers
- Higher Rate Taxpayers
Insolvency Compensation Limits:
No protection
2. Factfile: Venture Capital Trusts
Venture Capital Trusts VCT were introduced by the Government to promote investment by offering a range of tax benefits for investors who subscribe for qualifying shares in qualifying companies.
|
Feature |
VCT |
|
Income tax relief on initial investment |
30.00 % on investments up to £200,000.00 per tax year |
|
Minimum holding period to avoid tax relief clawback |
5 years |
|
Dividends |
Tax-free (but no reclaim for tax credits) and often paid from capital, not income |
|
CGT reinvestment relief |
None |
|
Capital gains on proceeds |
Nil |
|
IHT business assets relief |
None |
Maximum investment: £200,000.00 per year
Minimum term: 5 years
Investment Risk Profiles Available: High risk funds available
Changing funds and risk profile allowed: No
Moving to another company allowed: No
Life Insurance Included: No
Personal Tax Benefits:
- 30.00 % Income tax relief
- Dividends income tax free
- Capital gains tax free
- Investment losses cannot be offset against other gains
Can be held inside Trust: No
Suitable For:
- Adults
- Basic Rate Tax Payers
- High Rate Taxpayers
Insolvency Compensation Limits: No protection
3. CVS - Corporate Venture Scheme (now closed)
A corporate venture scheme is aimed at companies looking to invest in and take a minority shareholding in small, independent, higher-risk trading companies or groups.
Tax incentives will be offered to larger companies who offer investment into smaller companies whose qualifying share capital was issued between 1 April 2000 and 31 March 2010.
It is hoped that such schemes will make more commonly available, development capital for smaller firms looking to develop and grow.
Tax Relief: Corporation tax relief.
Deferral Relief: on gains made as well a Loss Relief on losses made
4. Enterprise Zone Investment
Enterprise zones were created across the country to promote investment and business development in deprived areas.
Investing in industrial buildings and commercial property was fully deductible as a business expense.
Enterprise Zone designation lasted for 10 years and the last 2 zones were designated in the North East of England in 1996. These designations ended in October 2006.
There are currently no further enterprise zones but this does not mean that further zones will not be designated in the future.
Minimum term - 25 years
If assets are sold within 25 years of the allowances being claimed, relief will be clawed back.
5. Seed Enterprise Investment Scheme SEIS.
Seed Enterprise Investment Scheme (SEIS) has tax breaks for investment in funds that investment in business development finance. They were launched in 2012.
The key word is SEED. These are small, early stage, start-up companies with less than 25 employees that has been trading for less than 2 years. With assets less than £200,000. The company looking to raise investment capital cannot raise more than £150,000 via SEIS. The company shares must be unquoted private limited companies i.e. not on any stock exchange.
SEIS in brief: