The Government wants to encourage individuals to make high-risk investments in small trading companies by providing income tax relief for investors. In 2022/23 the main schemes available are:
- Enterprise Investment Scheme (EIS): 30% relief on up to £2 million
- Seed Enterprise Investment Scheme (SEIS): 50% relief on up to £100,000
- Venture Capital Trust (VCT): 30% relief on up to £200,000
The amounts invested under EIS and SEIS can be treated as made in the previous tax year if the investment limit for the earlier year has not been reached.
The investment limit for the SEIS will double to £200,000 per person for investments made from 6 April 2023. Each company will also be able to raise up to £250,000 using this scheme, rather than £150,000 at present.
When you dispose of shares acquired under these schemes, any capital gains you realise will be free of Capital Gains Tax (CGT) if you’ve held the investment for at least three years (except VCTs, where there is no minimum period).
Any CGT that arises from selling other assets can be deferred by reinvesting under the EIS within three years of making the gain.
Reinvesting any gain in SEIS shares will halve the tax on that gain if the investment limits and conditions are not breached.
These tax reliefs won’t turn a bad investment into a good one, but they will make a good one better and will reduce the risk involved in investing. You should, however, always take advice from a qualified financial adviser on where to put your money.
If you are thinking of investing in one of these schemes, you may want to do so before 6 April 2023 to maximise the benefit, but please discuss this with us in advance.