UK Budget Autumn 2017 – Investments

A new measure in the Budget 2017 aims to stop investors sheltering their money in ‘safe’ companies to earn generous tax reliefs.

Risk to capital condition rules are aimed at tax-motivated investments structured to claw the maximum tax break while preserving the investors cash.

The temptation to stake money against a start-up or growing company is huge.

Investors in the Seed Enterprise Investment Scheme (SEIS) can grab back up to £50,000 a year against income tax paid plus capital gains tax on the sale of shares in the start-up or loss relief against other taxable income should the investment fail.

SEIS is recognised as one of the world’s most generous tax incentives for investing in businesses.

Curb on tax saving opportunists

Other investment schemes included under the new measure are the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT) and Social Investment Tax Relief.

The new rules start from April 2018 and mean companies offering tax incentivised investments must show that the company has the goal of growing while the investor faces a significant risk of losing their money.

Another enterprise investment measure changed in the Budget is the definition of a relevant investment.

Whether a stake in a business is a relevant investment determines how much money counts towards a company’s lifetime funding limit under EIS/SEIS/VCT or SITR.

The rules make any investment made before 2012 relevant investments.

“This measure is intended to ensure that all risk finance investments that a company may receive are treated as relevant investments regardless of when they were made,” says HMRC.

VCT bed and breakfast update

Another new rule is aimed at making sure investors cannot claim tax relief more than once on the same VCT.

“The rule restricts income tax relief where a VCT buys back shares from an investor and the investor subscribes for new shares in the same VCT within a six-month period, a form of ‘bed and breakfasting’,” says HMRC.

“It also restricts income tax relief for investors who sell shares in a VCT and subscribe for new shares in another VCT within a six-month period, where those VCTs merge.

“This measure will ensure that income tax relief may no longer be withdrawn where the relevant VCTs merge more than two years after the latest subscription for shares, or do so where it is not one of the main purposes of the merger to obtain a tax advantage.”

The rule applies to all VCT transactions since April 2014.

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