Entrepreneurs’ relief, EIS & SEIS schemes
A healthy economy very much depends on its entrepreneurs and wealth creators. In recognition of this, UK tax legislation contains a number of tax incentives and tax reliefs designed to encourage them to create and grow new businesses. The rules can be complex, but with the right professional advice and implementation, access to such valuable reliefs can be achieved and substantial tax savings can be made.
Entrepreneurs and Investors Services
Friend Partnership’s services for entrepreneurs and investors will ensure that planning involving these tax incentives and tax reliefs is implemented on time and in accordance with the detailed legislation so potential can be absolutely maximised.
EIS reliefs are available to individuals who invest in shares in qualifying companies.
These investors qualify for income tax relief equivalent to 30% of the investment made. This relief reduces the income tax liability of the year the investment is made or for the previous tax year.
Once the investor has held the shares for three years, any gain on their disposal is free of tax.
EIS relief is also available to defer any capital gains tax liability on the disposal of other assets.
Friend Partnership Entrepreneurs and Investors Services advise potential investors and business owners wishing to secure EIS status for their company shares and encourage outside investment. If required, we will also obtain advance assurance from HM Revenue and Customs that shares will qualify for the relief.
The EIS scheme legislation is complex but at Friend Partnership, having advised on it since its introduction in 1994, we know all of its complexities very well.
Introduced in April 2012, SEIS is similar to EIS in terms of its detailed rules. The main difference with SEIS is that it is targeted specifically at new start-up businesses which have been trading for less than two years.
The legislation recognises that investments in start-ups are inherently more risky than investments in more well-established trading companies. As a result, the reliefs attached to SEIS shares are more attractive.
SEIS investors will qualify for 50% income tax relief (as opposed to 30% for an EIS investor). They will also be able to claim a capital gains tax (CGT) exemption equal to 50% of the amount they invest. These reliefs are available either for the year the investment is made or for the previous tax year.
The rules surrounding SEIS companies and investments are as detailed as those for EIS investments. At Friend Partnership we have been dealing with SEIS since its inception in 2012 and we understand all of its intricacies.
Entrepreneurs’ Relief (ER)
Introduced as a successor to Taper Relief in the 2008 budget, ER is available to individuals who dispose of their trading businesses. It can also be claimed on the disposal of shares and other assets associated with those trading businesses.
The relief allows the individual to pay CGT on any disposal at a rate of only 10% (as opposed to 20%).
There is a lifetime limit to gains which can qualify for ER. That limit was reduced from £10 million per individual to £1 million in 2020. Despite this reduction the relief is still potentially very valuable.
Friend Partnership has helped many clients structure their businesses to ensure that, on an eventual sale, the relief is available. We have also advised on pre-sale planning and restructuring to maximise reliefs.
To find out more about our Entrepreneurs and Investors Services please contact our Tax Partner, David Gillies.