This is a new venture capital scheme offering tax relief on investment and capital gains tax exemption on exit and will be available from 06 April 2012. Likely to be introduced in Finance Bill 2012, the relief may prove to be a more generous rate of relief than that offered under Enterprise Investment (EIS) and will increase the incentive for individuals to invest in small companies and help new businesses to establish.
The salient features of the scheme are:
1) Applies to smaller companies; those with 25 or fewer employees and with assets up to £200,000, carrying on or intending to carry on new businesses.
2) Relief would apply to subscription to eligible shares using the same definition of EIS, but the definition will be wider than the EIS one.
3) Investment should not exceed 30% of the stake in a company, and the directors are also eligible for tax relief for investments in to their own companies.
4.Annual investment per investor limited to £100,000 with an option to carry back unused limit to the previous year.
5) Investments would be eligible for 50% tax relief under part 5 of ITA 2007 and would also be eligible for exemption from capital gains tax on disposals. Gains realized in 2012-13 will be eligible for exemption from CGT where these are reinvested through the SEIS in the same year.
6) Tax favoured investment in a company to be limited to £150,000 which will be a cumulative limit not an annual limit.
The EIS legislation is in Parts 5 of the Income Tax Act (ITA) 2007. The EIS rate (currently 30 per cent) is set by section 158 of ITA with a limit of £500,000 that an individual can invest under EIS. The company size threshold (gross assets of no more than £7million immediately before the share issue and £8million after) is set by section 186 ITA. The limit on the number of employees (currently, fewer than 50) is at sections 186A ITA. The £2million limit on the amount of investment that a company can raise under the scheme is defined at section 173A. Section 192 ITA (for EIS) defines which activities, carried on by an investee company, exclude it from qualifying for relief. The Finance Bill 2012 will increase the employee limit to fewer than 250 employees, the size threshold to gross assets of no more than £15 million before investment, the maximum annual amount that can be invested in an individual company to £10 million, and the annual amount that an individual can invest under the EIS to £1million. These changes will apply to shares in investee companies issued on or after 6 April 2012.
