Angels & Tax
The UK has a benign tax environment for business angel investors, principally in terms of the Enterprise Investment Scheme (EIS), which was supplemented by the Seed Enterprise Investment Scheme announced in the 2012 Budget.
Provided an EIS qualifying investment is held for no less than 3 years from the date of issue, or 3 years from commencement of trade, a qualifying individual with no more than 30% interest in a companycan reduce their income tax liability by an amount equal to 30% of the amount invested.The investments must be above £500 in eligible shares in a company and up to a maximum of £1,000,000 per investor in any tax year.
If you have received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for the qualifying period,any gain is free from Capital Gains Tax.
If the shares are disposed of at a loss, you can elect that the amount of the loss, less any Income Tax relief given, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of being set off against any capital gains. The net effect is to limit the investment exposure to 42p in the £1 for a 40% tax payer if the shares become worthless.
The payment of tax on a capital gain can be deferredwhere the gain is invested in shares of an EIS qualifying company. The gain can arise from the disposal of any kind of asset, but the investment must be made within the period one year before or three years after the gain arose.
For more information, click here for the Inland Revenue’s guidance on EIS. (Opens in a new browser window)
Income Tax relief is available to individuals who subscribe for qualifying shares in a company which meets the SEIS requirements, and who have UK tax liability against which to set the relief. Investors need not be UK resident. The shares must be held for a period of three years from date of issue for relief to be retained. If they are disposed of within that three year period, or if any of the qualifying conditions cease to be met during that period, relief will be withdrawn or reduced.
Relief is available at 50 per cent of the cost of the shares, on a maximum annual investment of £100,000. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it.
For the tax year 2012/13 only,if you dispose of an asset which would give rise to a chargeable gain in 2012/13, and reinvest all or part of the amount of the gain in shares which also qualify for SEIS income tax relief, the amount reinvested will be exempt from capital gains tax. The £100,000 investment limit which applies for income tax relief also applies for re-investment relief.
As with EIS, if you have received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for at least three years,any gain is free from Capital Gains Tax.
For more information, click here for the Inland Revenue’s guidance on SEIS. (Opens in a new browser window)