Income Tax relief for investing in new ventures

We were approached by an existing client who was seeking investment in their new venture.  The client had two potential investors who were willing to invest £100,000 each into the company as loan capital. He wanted to know if this was the most tax efficient way of doing this.

We discussed the merits of the Seed Enterprise Investment Scheme (SEIS) , which provides 50% income tax relief for qualifying investors.  As the venture was so new, it was likely to qualify for the SEIS Scheme.  It was agreed that on this basis a share subscription should be made rather than introducing loan capital, to provide tax relief for the investors.

In addition, we discussed how the payments would be made within the restrictions of the scheme.  Currently, only £150,000 of SEIS investment can be made into a qualifying company and this only applies when the gross assets of the company are less than £200,000 at the time of investment.

However, once maximised under the SEIS, the company would be able to use the normal  EIS Scheme, whereby qualifying investors receive income tax relief of 30%.   Therefore, each of the two investors was advised to subscribe for £75,000 each in shares under SEIS.  The remaining £50,000 investment would be made under the normal EIS Scheme, once the requirements of the SEIS had been fully met.

We assisted in preparing all of the necessary documentation to ensure that the company could be registered within the scheme.  This meant that when the investors subscribed for their shares, their investments qualified for Income Tax relief. 

 

 

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