A leading fund manager is warning financial advisers are misusing the Seed Enterprise Investment Scheme (SEIS) by hunting for tax losses instead of the best investments for their clients, according to specialist web site SEIS.co.uk.
The site reports some independent financial advisers hawk their clients’ investments around platforms and fund managers looking for deals.
Their aim is not the best return on an investment for the client, but the SEIS tax breaks.
Chancellor George Osborne set up SEIS in Budget 2012 to aid fledgling firms that could not raise start-up cash from the banks.
To encourage investors, Osborne tempered start-up risk against tax breaks.
SEIS tax breaks
Tax benefits include a 50% income tax reduction up to the value of the investment. An investment of £100,000 into SEIS reduces that year’s income tax by £50,000.
The offer is there regardless of how much is invested and whatever the investor’s marginal rate of tax.
Capital gains tax exemptions on disposals to raise investment cash and on the value of shares sold at the end of the SEIS are significant, says SEIS.co.uk, as is the chance to set off SEIS losses against other income.
These tax breaks are a tremendous incentive to invest in a new company.
However, some accountants and financial advisers are looking for the worst instead of the best investments to write off tax for clients.
Speculative investments
More speculative ventures with unlikely outcomes are their main targets. The industry is worried that film producers raising money for productions that may never get off the ground are gathering in investment cash that could go to businesses with a real need for the finance in the knowledge that investors will not lose out due to tax breaks.
Rockpool Investments fund manager Nicola Horlick is quoted by SEIS.co.uk as saying: “Some IFAs, rather than come directly to us, may go to a platform and want to invest £100,000 and all they care about is getting the tax relief.
“Going one step beyond – the individual may not know which provider to use and may go to a platform – it is a fund-of-funds type approach. All it does is add to the fees, but from our point of view it is great and another way of getting business – it is another way of feeding business into our fund.”
