EIS is designed to help these small companies raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. With ever increasing constraints on pension tax relief EIS has become ever more popular.
EIS and VCTs have traditionally been grouped together because they encourage investment in small unquoted trading companies and have certain legislative features in common. For these purposes, shares on the Alternative Investment Market (AIM) are considered unquoted. Most trades qualify, but some which are termed ‘excluded activities’ do not. For example, dealing in land or commodities; financial activities; and property development are all excluded activities. A company can carry on some excluded activities, but these must not be ‘substantial’ which HMRC take to mean as more than 20% of the company’s activities.
With regard to the qualifying rules for these small unquoted trading companies, there were changes effective from April 2012 which
- increased the maximum number of employees to 249 (from 49).
- increased the maximum total gross assets before investment to £15 million (from £7 million).
- increased the maximum total gross assets after investment to £16 million (from £8 million).
- increased the annual amount raised by an individual company to £5 million (from £2 million).
- removed the £1 million limit on investment by a VCT in a single company.
Seed EIS (SEIS) was introduced from 6 April 2012 to encourage investment in new start-up companies. At Budget 2014, the government announced that the SEIS was being made permanent.
The Government announced at Budget 2015 an amendment to tax-advantaged venture capital schemes. There were a number of revisions including:
- In addition to the existing cap on annual investments of £5 million, a new cap applies on the total amount of investments a company may raise under EIS, VCT or other risk finance investment, of £15 million, except for knowledge-intensive companies.
- For knowledge-intensive companies, the cap on the total amount of investments is £20 million, and the limit on employees is raised from 250 to 500 employees.
It was announced at Autumn Statement 2015 that effective from 30 November 2015, the provision of reserve energy generating capacity and the generation of renewable energy benefiting from other government support by community energy organisations are no longer qualifying activities for VCT or Social Investment Tax Relief.
Contact the friendly helpful team at Talis for further information.
|VCT 2018/19||VCT 2019/20||SEIS 2018/19 & 2019/20|
|Holding period||3 years||3 years||5 years||5 years||3 years|
|One year carry back||Yes||Yes||No||No||Yes|
|Capital Gains Tax||Gains exempt after 3 years||Gains exempt after 3 years||Gains exempt||Gains exempt||Gains exempt after 3 years|
|Capital Gains Tax deferral relief||Yes||Yes||No||No||No|
|Capital Gains Tax holiday||No||No||No||No||