The income tax relief benefits vary between the 2 schemes:
Both EIS and SEIS allow investors to benefit from a Captial Gains Tax exemption on any gains made in the value of their shares. There are required to hold on to the shares for a minimum of 3 years before they sell to benefit from this exemption.
Like Captial Gains Tax, an EIS or SEIS investor will benefit from an exemption from inheritance tax, providing the shares are held for at least 2 years.
If your investment losses money or is entirely worthless, you can claim with income tax or capital gains tax loss relief.
It is of course sensible to review your investment and only commit money that you are ready to lose, however, the generous tax incentives for investors can dramatically reduce the capital at risk.
This is illustrated in the example below that details a £20,000 investment for investors at each income tax threshold
|When you make a loss on your investment||SEIS||EIS|
|Basic Rate Tax Payer||Higher Rate Tax Payer||Additional Rate Tax Payer||Basic Rate Tax Payer||Higher Rate Tax Payer||Additional Rate Tax Payer|
|Example: Investor highest Tax Band||20%||40%||45%||20%||40%||45%|
|Example: Investment Amount||£20,000.00||£20,000.00||£20,000.00||£20,000.00||£20,000.00||£20,000.00|
|Income Tax Relief in the tax year you make the investment (or 1 tax year prior)||50%||50%||50%||30%||30%||30%|
|Income Tax Loss Relief||£4,000.00||£8,000.00||£9,000.00||£4,000.00||£8,000.00||£9,000.00|
|Capital Gains Tax Loss Relief|
|Net Investment Lost when your shares go to Zero||£6,000.00||£2,000.00||£1,000.00||£10,000.00||£6,000.00||£5,000.00|
|Percentage of your initial investment at risk||30.00%||10.00%||5.00%||50.00%||30.00%||25.00%|
If you need advice, tax planning or compliance services, speak to our personal tax team for more details
If you want to register your business for SEIS or EIS under HMRC’s advanced assurance scheme – click here.