EIS, VCT and SEIS Flashcards Preview

AF1 2020/21 > EIS, VCT and SEIS > Flashcards

Flashcards in EIS, VCT and SEIS Deck (6)
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1

Venture Capital Trusts - Tax treatments - key points:

  • Income tax relief og 30% as a tax reducer, up to a a maximum investment of £200,000 per tax year.
    • Tax relief withdrawn if shares disposed of within five years. 
  • No income tax on dividends from investments up to the maximum per tax year. 
  • Exempt from CGT (on disposal - no minimum holding period)
  • Cannot defer capital gains. 
  • Included in estate on death. 

2

VCTs - VCT qualifying conditions - key points:

HMRC must approve the company as a VCT which means it has satisifed the following conditions:

  • Must not be a close company. 
  • Must be listed on an EEA stock exchange. 
  • Income must be wholly or mainly derived from shares. 
  • At least 80% of these shares must be qualifying unlisted trading companies. 
  • VCT must not hold more than 15% of ordinary shares in any one company. 
  • At least 10% of investments in any company must be in ordinary, non-preferential chares or certain preference shares. 
  • Companies the VCT invests in must have gross assets of not more than £15m pre-investment and £16m post-investment. 
  • Companies must have fewer than 250 employees (500 for KIFs)
  • Maximum annual investment by VCT of £5m (£10m in KIFs)

3

Enterprise Investment Schemes (EIS) - taxation treatment - key points:

  • Income tax-relief at 30% as a tax reducer, up to a maximum investment of £1,000,000 (£2,000,000 KIFs) per tax year. Relief is withdrawn if shares are sold within three years. Investment can be carried back one year if this is more advantageous. 
  • Disposal proceeds exempt from CGT provided EIS is held for three years and than income tax relief given at outset. 
  • Can be used to defer capital gain. Up to 3 years after disposal and 1 year prior. 
  • Can claim loss relief on disposal of shares (less income tax relief given) can be deducted from gains or income. 
  • Income and CGT relief only available to unconnected investors. Deferral of CGT available to everyone. Investor cannot have pre-arranged exit provisions. 

4

Company conditions required in order to qualify for EIS - key points:

  • Company must be unlisted when EIS shares are issued, can be no arrangement at the time for it to become listed (listed on AIM is ok). 
  • Company must have permanent establishment in the UK. 
  • Company must have fewer than 250 (500KIFs) full-time employees. 
  • Gross assets of not more than £15m pre investment, £16m post investment. 
  • Must be carrying on a qualifying trade or be parent company of trading group. 
  • Cannot raide more than £5m (£10m) in past 12 months from EIS or VCT investment
  • £12m cap (£20m for KIFs) total investment

5

SEIS - taxation treatment - key points:

  • Income tax relief given as a tax reducer up to a maximum of £50,000 (half of the maximum £100,000 investment peritted in the current tax year). Relief withdrawn if shares disposed of within 3 years. 
  • Relief can be carried back a yar, SEIS shares are then treated as having been issued in the same year. 
  • Income tax relief claim can be made up to five years after 31 January following the tax year of investment. 
  • Half of any chargeable gains reinvested in SEIS shares that qualify for income tax relief are exempt from CGT, up to £50,000, same as for income relief.
    • SEIS reinvestment can take place before disposal provided reinvestment and disposal occur in same year.
  • Exempt from CGT on disposal providing shares held for 3 years but only if claim for IT relief made at outset. 
  • No exit arrangements pre-arranged. 
  • Investor may be paid director of company where shares subscribed for. 

6

SEIS company qualifying conditions - key points:

  • Company must have been trading for less than two years
  • Carrying on a genuine trade
  • Gross assets of less than £200,000
  • Fewer than 25 full time employees
  • Must be unquoted at time of share issue
  • Must be carrying on a qualifying trade or be parent company of a trading group.