The Government has introduced a new venture capital scheme in the Finance Act 2012, which applies to investments made between April 6 2012 and April 6 2017. The scheme works similarly to the Enterprise Investment Scheme. However, this new relief solely concentrates on early-stage small trading companies, which are more likely to be affected by the endless recession we have been in.
The individual investor is a qualifying investor in relation to the relevant shares if:
- the investor is not an employee;
- s/he does not have substantial interest (i.e. does not hold 30% of the ordinary share capital or voting rights) in the issuing company;
- s/he does have linked loans; and
- tax avoidance is not the primary and main aim for the subscription.
The relevant shares subscribed must be non-redeemable ordinary shares, and should not carry preferential rights to dividends and company’s assets on a winding-up.
The relevant shares (other than any of them which are bonus shares) must be issued in order to raise money for the purposes of a qualifying business activity carried on, or to be carried on, by the issuing company or a qualifying 90% subsidiary of that company.
The issuing company must be relatively small. In the case of relevant shares issued by a single company, the value of the company’s assets must not exceed £200,000 and the full-time equivalent employee number for it must be less than 25 immediately before the relevant shares are issued. In the case of relevant shares issued by a parent company, the value of the group assets must not exceed £200,000 and the full-time equivalent employee number for it, and the full-time equivalent employee numbers for each of its qualifying subsidiaries, must be less than 25 immediately before the relevant shares are issued.
Annual investment amount for each individual investor is £100,000. The issuing company can only subscribe shares up to £150,000 in total.
SEIS income tax relief gives an entitlement to tax reductions in respect of amounts subscribed by individual investors for shares in companies carrying on new businesses. Tax reduction will be given in the tax year the shares are issued. Tax reduction rate is 50%.
This new scheme also provides capital gains relief for individual investors.
If you would like to obtain further information please contact us.
Tulin Kiranoglu, Solicitor, Tax Advisor