How can you attract a future investor?
Tuesday, 29 November 2016
The Apprentice is back on TV and the contestants are proving just how far they will go to win Lord Sugar’s latest £250,000 investment.
If that kind of challenge is not for you, here’s another option. Talk to your potential investors about Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) relief. An investor paying £250,000 into an SEIS/EIS business could claim up to £191,250* in tax relief and will generally be exempt from both capital gains tax and inheritance tax.
That’s a return on investment of over 75%before your company even starts to make profits.
So why isn’t everybody doing this?
Partly because your investor needs to have the cash to pay into the company in the first place – the tax relief comes later; and partly because there are quite a number of conditions that need to be met both by the company and the investor. In brief, the main conditions are:
The company must:
- Be an unquoted or AIM-listed company;
- Have assets of less than £15 million (for EIS; £200,000 for SEIS);
- Employ fewer than 250 (for EIS; 25 for SEIS); and
- Carry on a qualifying trade (broadly, not property, farming, financial or legal services).
The investor must:
- Be an individual;
- Have the same rights as other shareholders;
- Hold the shares for three years; and
- Not be connected with the company.
‘Connected’ with the company could be via employment or by owning more than 30%of it. An investor is also connected if their spouse, business partner, children, grandchildren, parents, grandparents (but not siblings) or trustees of their trust are connected with the company. A paid director may also be connected for EIS purposes but not SEIS.
So, whilst the conditions may seem strict (and please note many of the conditions apply for two years before and three years after investment), the tax reliefs are extremely generous – up to 86.5%back for SEIS and 61.5%for EIS investments, plus tax-free growth on the value invested and no inheritance tax to pay.
You don’t need to wait until an investor approaches you. Why not contact us to talk about HM Revenue & Customs’ advance assurance process, which will allow you to market your company as qualifying for SEIS or EIS relief?
Contact our Corporate Finance team on 01603 624181 or email@example.com
*£191,250 is the maximum amount of tax relief calculated as follows:
SEIS reliefs (maximum SEIS investment per company £150,000 spread over more than one year)
Income tax deduction: 50%of amount invested (£150,000 x 50%= £75,000)
Capital gains tax deduction: 50%of any gain up to amount invested (£75,000 x 28%x 50%= £21,000)
Note that gains on assets other than residential property are taxed up to 20%not 28%
Loss relief if investment fails: up to 45%of amount that has not received income tax relief ((£150,000 – £75,000) x 45%= £33,750)
Income tax deduction: 30%of amount invested (£100,000 x 30%= £30,000)
Loss relief if investment fails: up to 45%of amount that has not received income tax relief ((£100,000 – £30,000) x 45%= £31,500)