HMRC has recently clarified the position on the Capital Gains Tax (CGT) re-investment relief available under the Seed Enterprise Investment Scheme (SEIS). Here Neil Norman, Entrepreneurial Tax Partner at Chiene + Tait, outlines the position and recommended next steps to take.
Background to SEIS
SEIS provides investors with 50% income tax relief on their investment in qualifying companies, to a maximum of £100,000 per tax year. In addition, HMRC and HM Treasury had previously indicated that, to ‘kick-start’ this relief, CGT re-investment relief (a pound for pound exemption on chargeable gains re-invested this year) would be available for the 2012-13 tax year only.
However, HMRC has now clarified that investors can claim to treat SEIS investments made in the 2013-14 tax year, as if made in the 2012-13 tax year. This means that, practically speaking, the one year CGT relief can be extended by a further year, provided that the individual concerned has income tax to relieve and chargeable gains to exempt in 2012-13.
SEIS has been called “the world’s most generous scheme for angel investors”* . Between the Income Tax and CGT reliefs available, an investment in a company can receive 78% tax relief up front. In addition, investments sold for a gain after a three year qualifying period will not be subject to CGT and investments in companies which fail can also receive a further income tax relief, resulting in 100.5% tax relief across the life of the investment. As such, for the right investor, the cost of investment is being completely underwritten by HMRC.
This is summarised below:
|Invest £100k in an SEIS qualifying company ……..||£100,000|
|Income Tax relief (2012/ 13)||(£50,000)|
|CGT exemption (on £100k gain)||(£28,000)|
|Cost of Investment||£22,000|
|But if it fails next year…|
|Income Tax relief (2013/ 14)||(£22,500)|
|(£100,000 invested – £50,000 SEIS) *45% tax rate|
|Total Cost of Investment||(£500)|
The ability to claim investment reliefs in the 2012-13 tax year on investments made in the 2013-14 tax year presents investors with tax planning opportunities. In addition, it provides time for investors to consider which companies to invest in.
Chiene + Tait has considerable experience in assisting companies obtain SEIS qualification status and in assisting investors to obtain the valuable tax reliefs available to them.
Further information on SEIS and other tax reliefs, such as EIS, R&D and Patent Box, can be downloaded on the right of this page.
If this change could affect you, or a client, please do not hesitate to contact Neil Norman on 0131 558 5800 or email email@example.com.
*Dale Murray, angel investor, quoted in Daily Telegraph on 11 January 2013.