Business investment reliefs
Don’t overlook the tax reliefs that may be available when acquiring minority stakes in companies.
With income tax relief on the investment, capital gains tax exemptions on a future sale of the shares and the ability to defer any capital gains realised when reinvesting proceeds into the investment, the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) Reliefs are invaluable but often forgotten about.
If you are acquiring 30% or less in a company, it is always worth asking the question whether you qualify for the reliefs. The investor, the shares and the company have to meet a raft of conditions, but we regularly navigate these to maximise investment reliefs for individuals where possible.
The reliefs can allow the shares to be sold free of tax and attract income tax relief of 30% (for EIS) and 50% (for SEIS on the amount invested – so they are worth discussing.
Even when EIS and SEIS do not apply, there is also another opportunity for a 10% capital gains tax rate on the sale of investments with the introduction of Investors’ Relief (IR). With a lifetime limit of £10 million of gains that can qualify – in addition to the £1 million limit for gains eligible for Business Asset Disposal Relief – and with less stringent conditions, Investors’ Relief is a key relief that investors often overlook.
The key is to start the conversation with us early, before any investment is made, to ensure the structure is right and the availability of reliefs is fully considered. Once done we can’t retrospectively fix it. All conditions must be met, and the claim correctly made to retain the tax benefits. We can help at every stage.
This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.