If your answer to this question is “yes” then read on…
The introduction of the Seed Enterprise Investment Scheme (SEIS) from April 2012, a development of the existing EIS, enables investors who invest in start-up businesses to claim a 50% income tax refund as well as cancel any capital gains tax incurred during the current tax year. This therefore means you can get a potential 78% tax relief on your investment, in addition to the exemption from capital gains tax on the subsequent disposal of the SEIS investment.
The maximum amount an individual can invest in a SEIS company is £100,000. A worked example below demonstrates very clearly how the tax reliefs work. For example:
- Mr Smith has a 2012/13 capital gain of £50,000 results in a taxable gain of £39,400 after utilising the annual exemption. Assuming he is a higher rate taxpayer, this will give rise to a tax bill of £11,032.
- Mr X invested £40,000 in a SEIS approved company.
- Mr X has a reduction in his 2012/13 income tax position by £20,000.
- Capital gains tax bill of £11,032 eliminated.
- Therefore, the combined tax saving is £31,032 for a £40,000 investment.
There are obviously various conditions that the company has to comply with to meet the SEIS criteria and most importantly there is a very large chance that the company might fail due to it being a start-up and the risks associated with such companies are greater than with established businesses. However, this is not all bad news as there is further tax relief that can be claimed if the company fails, which means that the overall combined tax relief to which you may be entitled could be as much as 100.5% of the original investment!
If you feel that you would like to take advantage of this type of investment and the tax relief’s that you could be entitled to then we are able to put you in touch with companies who have been approved for SEIS and have a strategy to hopefully return your investment.
Please contact us for further information or have any questions.