Seed Enterprise Investment Scheme (SEIS) tax breaks are so good that other investment incentive schemes ought to share them as well, claim business leaders.
In particular, Simon Walker, director general of the Institute of Directors wants Chancellor George Osborne to add inheritance tax breaks enhance Venture Capital Trusts (VCT).
Walker says SEIS and the Enterprise Investment Scheme (EIS) are runaway successes helping small businesses grow, but VCTs are the forgotten cousin.
A range of tax break available to SEIS and EIS exclude VCTs, writes Stuart Smith of specialist investment web site SEIS.co.uk.
“VCTs are often seen as a sensible supplement to pensions,” Walker said on the SEIS.co.uk web site.
VCT Tax disadvantages
“Relief on for pension contributions, I think it’s likely VCTs will become a good alternative for long-term investment, admittedly with a degree of risk, which is why we need a change in inheritance tax relief.”
SEIS and EIS qualifying investments automatically gain inheritance exemptions through business property relief after two years, but VCTs are excluded from the opportunity.
Walker explained changing the rules would be relatively cheap for The Treasury and the small amount of tax redirected through VCTs would make them more attractive for investors.
“These are ordinary people with aspirations to help small businesses and community projects with relatively small amounts of money,” he said.
“SEIS and EIS are helping businesses and VCT sit in the middle with some tax disadvantages.
“The Chancellor should address this in his Autumn Statement and pre-election Budget.”
Hybrid schemes
SEIS allow investors to take a £100,000 equity stake in a business in return for a 50% income tax reduction and a 50% capital gains tax deferral on cash raised for the investment from selling other assets.
Equity growth is also tax free, and should a project fail, the investor can claim loss relief against other income.
EIS offers similar tax breaks for investments of up to £1 million, but the income tax and capital gains tax incentives drop to 30%.
However, VCTs allow a maximum investment of £200,000, but no loss, deferral or inheritance tax reliefs.
“I believe the VCT investment limit should also go up to £1 million or perhaps even a hybrid investment of up to £1.5 million should be allowed for combined VCT, SEIS and EIS investment,” said Walker.
