The enterprise investment scheme (EIS) and venture capital trust (VCT) have traditionally been grouped together because they encourage investment in small, unquoted trading companies and have certain legislative features in common. For these purposes, shares on the Alternative Investment Market (AIM) are considered unquoted. Most trades qualify, but some which are termed “excluded activities” do not. For example, dealing in land or commodities, financial activities and property development are all excluded activities. A company can carry on some excluded activities, but these must not be “substantial”, which HMRC takes to mean as more than 20% of the company’s activities.
The EIS is designed to help these small companies raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.
The VCT scheme spreads the investment risk over a number of companies since individuals invest indirectly in a range of small companies. Investors subscribe for shares in VCTs, which are companies listed on the London Stock Exchange and are similar to investment trusts. VCTs are run by fund managers who are usually members of larger investment groups. From time to time, VCTs realise investments and make new ones. Individuals may now subscribe for shares in a VCT via a nominee.
The government announced in the 2011 budget that it would consult on options to provide new support for seed investment. As a consequence, the seed enterprise investment scheme (SEIS) was introduced from 6 April 2012 to encourage investment in new start-up companies. In the 2014 budget, the government announced that the SEIS was being made permanent.
These investments can generate income tax relief at 30% (50% for SEIS) and mitigate capital gains tax. Some reasons for using them are:
• If you can’t make pension contributions anymore, but still pay a lot of tax
• If you are retired and still pay a lot of tax
• If you are a business owner about to pay more tax on your dividends
• If you have a capital gains tax bill that you would rather not pay
• If you would like to save inheritance tax without giving away assets
Additional Risk Warning
As with all investments, there are advantages and disadvantages. Whilst tax efficient, however these investments are high risk and may not be suitable for you. There are complex rules involved, including investment limits and minimum holding periods, and you may lose some or all your money.
Part of our service includes assessing whether such investments may be suitable for you.
So if you are looking for a team that are friendly and professional get in touch today on 01635 551926 to find out more or to book your free consultation.
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