A new online share exchange will give shareholders in tax-effective investment schemes the chance to sell shares while planning a business exit strategy.
One of the issues facing investors in the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) is how to dispose of shares before the end of the 36-month investment term.
The shares are notoriously hard to dispose of as they are unlikely to be listed and are difficult to value.
Mercia Fund Management, a firm specialising in SEIS and EIS investments, has developed a solution for investors holding start-up and early-stage company shares through their funds.
A new online platform will allow investors to sell shares to other Mercia Fund Management investors.
Virtual share exchange
The platform will show investors any current offers for shares in companies held in their portfolios.
Any sales can be easily made through the platform.
The portal will also include a dashboard for Mercia Technologies, the fund management company’s parent.
Mercia Technologies directly invests into SEIS and EIS companies and will promote new funding rounds through the virtual share exchange.
“The virtual share exchange is designed to give our customers an edge in this exciting market,” said spokesman Talon Golding.
“We believe we have offered a solution to one problem for investors – how to exit a SEIS or EIS early and will show any new opportunities that are available as they arise.”
The firm will not give investment advice to customers looking to end a SEIS or EIS early.
Exit penalties
One factor that investors will need to consider before disposing of shares is that under the rules of both schemes, failing to hold shares for less than the 36-month term of the investment could see HM Revenue & Customs (HMRC) revoking the tax reliefs offered.
This would mean repaying any income tax and capital gains tax reliefs. HMRC has strict rules on reclaiming reliefs that do not run the full term.
Full repayment is not always required – in some cases the tax relief is reduced on a sliding scale.
Read more about SEIS and EIS qualifying rules for investors on the HMRC web site
“The decision has to be one for the investor and we highlight this drawback on the exchange,” said Golding. “The portal does however give shareholders a limited degree of liquidity to an otherwise illiquid investment.”
