EIS, VCT and SEIS

Question 1

Venture Capital Trusts - Tax treatments - key points:

Answer 1

• 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  • Tax relief withdrawn if shares disposed of within five years.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.

Question 2

VCTs - VCT qualifying conditions - key points:

Answer 2

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)

Question 3

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

Answer 3

• 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 Relief is withdrawn if shares are sold within three years.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.

Question 4

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

Answer 4

• 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

Question 5

SEIS - taxation treatment - key points:

Answer 5

• 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.

Question 6

SEIS company qualifying conditions - key points:

Answer 6

• 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.