SEIS, EIS And VCT Tax Breaks Explained

SEIS, EIS And VCT Tax Breaks Explained

The government offers tax breaks on three equity investment schemes aimed at encouraging private investors to put their money directly into a company.

The Seed Enterprise Investment Scheme (SEIS) is aimed at start-up businesses which would otherwise find funding from traditional sources like banks difficult to source.

The Enterprise Investment Scheme (EIS) runs on similar lines to the SEIS, but is aimed at attracting larger investments to help companies that are already trading to raise money for growth.

The Venture Capital Trust (VCT) again helps businesses looking for larger sums.

  • Learn more about SEIS

    Find out more information about the Seed Enterprise Investment Scheme and the benefits it provides for both investors and entrepreneurs.

    Read our SEIS guide here

Although the investments are similar, the tax breaks they offer differ – and here’s a quick guide aimed at explaining how they work for investors.

 

 

How the tax breaks compare

 

Income Tax SEIS
  • Relief on income tax paid is available at 50% up to the maximum annual investment of £100,000. All investors qualify for the relief, regardless of their tax rate
  • From tax year 2013-14, the investment can be carried back to the previous tax year
  • SEIS share dividends are taxed like any other dividend
EIS
  • Relief on income tax paid is available at 30% up to a maximum annual investment of £1 million
  • Tax relief can be carried back to the previous tax year
  • EIS share dividends are taxable like any other dividend
VCT
  • Relief on income tax paid is available at 30% up to a maximum annual investment of £200,000
  • Tax relief cannot be carried back to the previous tax year
  • No income tax is paid on dividends – but check any allowances
Capital Gains Tax (CGT) SEIS
  • Investors who sell assets to reinvest the cash in a SEIS during the 2013-14 tax year or the following tax year if electing carry back, pick up a 50% CGT exemption on any gain
  • If the original SEIS investment is reinvested in another SEIS, any gain is exempt from CGT
  • When a SEIS investment is realised, any gain is exempt from CGT
EIS
  • Any gain on an asset sold to raise cash for an EIS investment has a four-year window to defer CGT, starting in the tax year prior to the EIS investment
  • When an EIS investment is realised, any gain is exempt from CGT
VCT
  • No relief for assets sold to raise cash to invest after April 5, 2004
  • Gains realised on VCT investments up to the value of £200,000 made in any single tax year are exempt from CGT
Losses SEIS
  • Investors can claim tax relief on losses after considering the original 50% income tax relief. If the loss is more than the income tax or CGT due in the year, the balance is carried forward until exhausted.
EIS
  • Same as SEIS
VCT
  • None
Business Property Relief SEIS
  • SEIS shares held for at least two years qualify for 100% business property relief for Inheritance Tax purposes
EIS
  • Same as SEIS
VCT
  • None
SEIS
  • Investors risk losing their tax breaks if within three years of buying the SEIS shares:

–          The shares are sold

–          The company loses SEIS status

–          The investor receives payment or places an option over the shares

EIS
  • Same as SEIS
VCT
  • Investors risk losing their tax breaks If within five years  of purchasing VCT shares

–          They are sold

–          The VCT loses approved status

 

More information about SEIS, EIS and VCT

  • SEIS

HM Revenue and Customs SEIS web site pages

  • EIS:

HMRC EIS web site pages

  • VCT:

HMRC VCT web site pages

  • Crowdfunding:

Do not forget that crowdfunded investments can also be made through any of these equity investment schemes to maximise tax breaks and spread risk.

UK Crowdfunding Association

SEIS, EIS And VCT Tax Breaks Explained 5.00/5 (100.00%) 2 votes

SEIS, EIS And VCT Tax Breaks Explained

Get Advice

When it comes to your financial future, receiving the correct advice is of paramount importance. Please click here to connect with an independent financial advisor for expert, whole of the market advice today.
SEIS, EIS And VCT Tax Breaks Explained