Here at Key Business Consultants, we help our clients save tax by demonstrating the many benefits of investing in small, unlisted companies using the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS).
A taxpayer investing in the SEIS can benefit from Income Tax relief worth 50% of the amount invested in qualifying individual companies on a maximum annual investment of £100,000. In addition, there is an exemption from Capital Gains Tax (CGT) on disposals of SEIS shares that have been held for three years and a 50% exemption from CGT on gains reinvested within the scope of the SEIS.
The EIS is similar to the SEIS in helping to encourage investment in small, unlisted companies but the limits are significantly larger than for the SEIS. The main tax relief for investors comes in the form of income relief of 30%. The maximum annual amount that an individual can invest through the EIS is £1 million.
One of the lesser known benefits of these investments is that these investments can be treated as exempt from Inheritance Tax where the deceased invested in the shares at least 2 years before they died. This relief can be a valuable benefit of the schemes especially for wealthy taxpayers looking to mitigate their Inheritance Tax liabilities. However, it may be difficult for the trustees to be able to sell the shares and of course, there is a risk that the investment may become worthless.
This benefit is not strictly set-out as part of the SEIS and EIS rules but is linked to the Inheritance Tax Business Relief rules. The Business Relief rules generally relate to the ownership of a business, or share of a business included in the deceased estate for Inheritance Tax purposes and 100% business relief is available for qualifying shares in unlisted companies.
As with any investment, it is important to remember that whilst the various tax reliefs can make a good investment look even better, proper due diligence must still be used. It is also important to remember that for an EIS or SEIS investment to qualify both the company and the investors must meet all the necessary requirements.