Time To Look At Start-Ups As New Deals Roll Out

Lisa Smith, BA (Hons), CeFA
By

Now’s the time for savers who have maxed up their pension and ISA contributions for the year to look at tax incentives for investing in company start-ups.

Although Venture Capital Trust (VCT) tax breaks are tied into financial years, timing an investment is important.

The investment clock runs at a different pace to the tax clock.

Those in the know realise that fund managers spend the first half of the financial year placing funds raised in the last six months of the previous year.

Now, they are starting to put together their deals for the forthcoming financial year, which starts in April 2017.

The new launches will start rolling out with a few weeks.

Tax breaks

VCTs allow wealthy investors who are scheduled to reach the annual limits for other tax incentivised saving to put up to another £200,000 a year into fledgling businesses.

The benefit is picking up 30% income tax relief claimed against other tax paid in the year through a self-assessment return.

Any dividends paid by a VCT are tax-free, although many start-ups are not in a position to give money to shareholders.

The value of any shares also grows free of capital gains tax.

However, investors have to hold their VCT shares for at least five years to receive the full tax benefit.

Experienced investors will also find VCT rules have changed a little.

The new trusts are likely to be private-equity schemes looking for long-term growth and regular dividends.

VCTs may not be suitable investments for expats who are not tax resident as they are unlikely to benefit from the incentives.

SEIS and EIS opportunities

The same applies to the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).

Investors have a £100,000 a year investment limit on SEIS and £1 million on EIS.

Both offer the same reliefs as VCTs over three years instead of five, and at a rate of 50% tax relief for SEIS and 30% for EIS.

Relief is claimed in the same way against income tax paid in the year of investment via a self-assessment return.

VCT, SEIS and EIS investments do not count towards ISA and pension allowances.

1 thought on “Time To Look At Start-Ups As New Deals Roll Out”

  1. Because of current high commissions from banks, it could be helpful to use a money transfer specialist before transferring large amounts.

    Reply

Leave a Comment