- Income tax relief – 30% tax relief on the amount invested for EIS and 50% for SEIS.
- Capital Gains Tax (CGT) exemption – The sale of shares is exempt from CGT.
- CGT deferral/reinvestment relief – CGT can be deferred if capital proceeds are invested in EIS shares. SEIS reinvestment relief exempts (rather than defers) some of the gain.
- Loss relief – If shares are disposed at a loss the loss can be offset against income tax.
As the tax reliefs are so generous, there are strict rules for both the company and individual, some of which are as follows:
Individual
- Connection – No relief is available for employees and shareholders holding more than 30% of the shares. Directors can qualify but careful planning is required.
- Investment limit – Up to £1M can be claimed per individual per tax year for EIS and £100,000 for SEIS.
- Minimum holding period – Shares must be held for 3 years to avoid a clawback of income tax relief and to qualify for CGT exemption.
- Risk to capital – the shares must be full risk and have no preferential rights over other share classes.
Company
- Excluded activities – Some trades do not qualify. Examples of excluded activities are solicitors, property investment/development, hotels, nursing homes etc.
- Age of trade – EIS is available for up to 7 years after the company’s first commercial sale. SEIS is only available for companies that have been trading for less than 2 years.
- No subsidiary – Subsidiary companies cannot qualify.
- Gross assets – The company’s gross assets must not exceed £15M for EIS and £200,000 for SEIS.
- Investment limits – A company can raise up to £5M per year and £12M in its lifetime for EIS. The lifetime limit for SEIS is £150,000.
A company can apply to HMRC for advance assurance so there is certainty for investors that it qualifies for EIS/SEIS. It is strongly recommended that advance assurance is authorised before funds are raised.
Due to the complexity of the rules, professional advice should be sought at the outset. For advice on EIS and SEIS please contact Dafydd Ford on 01633 653166 or by email – dafydd.ford@kilsbywilliams.com
