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New tax breaks for start-up investors

From 6 April 2012, a new version of the Enterprise Investment Scheme (EIS) is available for new companies: Seed EIS.

EIS is a relief allowing individuals to invest up to £1 million per annum in qualifying companies and receive a deduction of up to £300,000 in their tax bill. Also, the shares could be exempt from future Capitals Gain Tax and, if held for two years, Inheritance Tax.

Seed Enterprise Investment Scheme (SEIS) allows an investor to buy up to 30% of a start-up company’s shares for up to £100k, with a deduction of 50% (i.e. up to £50,000) available against tax. This is in addition to the exemptions for Capital Gains Tax and Inheritance Tax as described above.

Also, just for 2012/13, any capital gains arising in 2012/13 can be rolled over into the investment so they will be exempt from tax.

Overall, this can give initial tax relief of up to 78% in 2012/13.  If the shares still qualify for the Inheritance Tax exemption on your death, the tax relief effectively works out at 100% of the investment.

SEIS can only be used by small companies (with up to 25 employees and £200k in assets) with a qualifying trade, but it is open to people who are existing directors of the company. There is a three-year clawback of relief rule if the company ceases to qualify during this period.

By its very nature this is a high risk investment but is worthy of consideration.

Please contact us if you’d like to know more about this or if you think you could benefit from SEIS.

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