So if you’re looking to attract investment in your company, is there anything you can do to improve the chances?
Well, there is a way for the investors to obtain a number of tax breaks subject to certain conditions. Let’s have a look at the tax advantages first.
- The investors will enjoy 30% income tax relief on the total of their investment, assuming their tax liability is high enough.
- As long as the shares are held for at least three years, there is no Capital Gains Tax due on any resultant gain.
- Even though there on no Capital Gains Tax on a gain relief is still available for losses, and they may be offset against income as well as other gains.
- Previous non-EIS capital gains can be deferred if the proceeds are invested in EIS shares.
These reliefs are pretty attractive, but there are conditions about the business and the investor that need to be met.
- The business must have a qualifying trade; this is more about a few types of trade such as finance and property that are specifically excluded. Most trading companies would qualify.
- The shares invested in must buy unquoted, in other words not listed on the stock market.
- The company must have gross assets of less than £15m.
- There must be fewer than 250 employees.
- They have to have been trading for at least four months before the share issue.
It is possible to obtain confirmation from HMRC in advance that a company qualifies – we help our clients do this so that investors can be sure that if they are eligible, then the reliefs will be available.
- The investor must hold the shares for three years.
- The investor cannot be paid employee, officer or Director.
- They cannot own more than 30% of the total shares.