There are 3 schemes designed to help small or medium-sized companies grow by attracting investment. They offer tax relief to individuals who buy and hold new shares, bonds, or assets for a specific period of time.
The company, investor, and proposed investment must meet the conditions of whichever scheme you opt for.
SEED ENTERPRISE INVESTMENT SCHEME (SEIS):
SEIS offers tax relief to individual investors who buy new shares in a company that meets certain criteria. Investors can receive income tax relief of up to 50% on investments up to £100,000 per tax year. The maximum amount you can raise in the lifetime of your company for SEIS investments is £250,000.
There are a few better options under the SEIS where you can maximize your tax relief, I am providing some of the better options below:
Option 1: For CGT Re-Investment
By investing £100,000 in our software, you can leverage tax reliefs totaling up to 78% (£78,000) of your investment amount. Here’s a breakdown of the tax benefits available to you:
Immediate Tax Relief: Receive a 50% income tax relief on your investment annually through the Seed Enterprise Investment Scheme (SEIS).
Tax Relief Amount: £50,000 (50% of £100,00)
Capital Gains Tax (CGT) Reinvestment Relief: If you reinvest 50% of your capital gains into our software, you can claim an additional 20% relief on the reinvested amount.
CGT Relief Amount: £10,000
Loss Relief: In the unlikely event that the startup fails, you can claim loss relief on the net investment. Assuming a tax rate of 45%, you could claim back:
Loss Relief Amount: £18,000 (45% of £40,000)
Risk Mitigation: In a worst-case scenario, the maximum amount you might lose is £22,000, which is just 22% of your initial investment.
Option 2: Normal Investments:
By investing £100,000 in our software, you can leverage tax reliefs totaling up to 72.5% (£72,500) of your investment amount. Here’s a breakdown of the tax benefits available to you:
Immediate Tax Relief: Benefit from a 50% income tax relief on your investment annually through the Seed Enterprise Investment Scheme (SEIS).
Tax Relief Amount: £50,000 (50% of £100,000)
Loss Relief: If the startup fails, you can claim loss relief on the net investment. Assuming a tax rate of 45%, this would amount to:
Loss Relief Amount: £22,500 (45% of £50,000)
Risk Management: The maximum potential loss on your investment is capped at £27,500, which represents only 27.5% of your initial investment.
Enterprise Investment Scheme (EIS):
EIS offers tax relief to individual investors who buy new shares in your company. helps your company to raise money and grow its business ― up to £5 million each year and a maximum of £12 million in your company’s lifetime.
Tax Reliefs for Investors
You decide to invest £100,000 in startup ideas by purchasing new shares in the startup company. The Investors in EIS-eligible companies can benefit from the following tax reliefs:
Income Tax Relief: Under EIS, you can claim income tax relief at 30% of your investment. Therefore, you can claim a tax relief of £30,000 (£100,000 * 30%) on your income tax bill for the year.
Capital Gains Tax (CGT) Exemption: If you hold the shares for at least three years and the company is successful, any profit you make when selling the shares will be exempt from CGT. For example, if the value of your shares increases to £200,000 and you sell them after three years, you would not have to pay CGT on the £100,000 gain.
Loss Relief: If the company unfortunately fails and you sell your shares at a loss, you can claim loss relief. For instance, if you sell your shares for £0, you have made a loss of £100,000 (£100,000 – £0). You can offset this loss against your income tax or capital gains tax liability, potentially reducing your tax bill further.
Risk Management: The maximum potential loss on your investment is capped at £25,000, which represents only 25% of your initial investment.