Budget 2016 upgrades to entrepreneur’s relief could damage investment in the flagship government enterprise investment schemes, claims a tax expert.
Changing the rules to allow company owners an easier route to pass their businesses on to families and loved ones could switch investment from the investment schemes to family firms.
Currently, the Seed Enterprise Investment Scheme and Enterprise Investment Scheme offer gilt-edged tax breaks to investors.
These include generous capital gains tax reliefs that see no tax on the growth of the value of shares in SEIS and EIS companies and deferral relief in some cases on cash raised by selling assets to make the investments.
In the Budget, Chancellor George Osborne opened the way for families to pass on shares in companies.
SEIS and EIS work around
Entrepreneurs relief will be given to investors in unlisted companies who hold shares for three years or more.
The relief offers capital gains tax at 10% on a lifetime total gain of £10 million.
Tax expert Tom Evenett of accountants Deloitte said: “This is a door opening for entrepreneurs with business ventures that do not qualify for SEIS or EIS.
“This also provides an opportunity for investors who want to put more than the SEIS or EIS limits into a company.”
He also explained that just how the new relief will work depends on consultation and the final drafting of the Finance Act 2016.
Restrictions on investments
Currently, investors can stake a maximum £100,000 a year in a SEIS company or £1 million in an EIS business.
However, not all businesses qualify for the scheme – two key exemptions are property and financial services companies.
Investing in SEIS and EIS companies also comes with some tough restrictions on who can hold shares in a company, depending on their connections with employers or owners and how companies are structured.
One possible hurdle to investors looking to utilise the new relief could be a review of the definition of a trading company that the government intends to undertake over the coming months.
This could block some investments and bring others into the scope of the new CGT relief, although landlords can expect to be left out in the cold as investors rather than traders.
SEIS Guide
The guide is downloadable from SEIS.co.uk , and provides an easily digestible source of vital information for anybody who could benefit from the scheme.
