In our previous article, published a few days ago, we discussed how Remote London Startups can raise fund under UK government’s startup funding schemes SEIS & EIS.
In this article, we look at the same schemes, SEIS & EIS, from the UK investors’ point of view. Here we discuss how you, as an investor in the UK, get huge tax benefits when you invest in Remote London Startups under these schemes.
What’s The Seed Enterprise Investment Scheme (SEIS)
This startup funding schemes was established by the government in 2012. The goal was to pique the attention of additional investors in investing in UK-based companies. It works by providing tax breaks to investors who qualify for the SEIS. They must purchase stock in qualifying companies. Companies or investors can contact HMRC to find out if their company qualifies for the SEIS. With this technique, tax breaks of up to 64% are possible. SEIS investors must assist small businesses in their early phases.
What are The Benefits of SEIS Investment for Me as an Investor
- You might get a tax break of up to 50% on the amount you invested.
- When you sell your shares, you may be free from Capital Gains Tax (CGT). This applies if you’ve owned the stock for at least three years.
- If, in the same tax year, a CGT write-off of 50% of the amount invested is claimed,
- If the shares are kept for longer than two years, they are normally tax-free (IHT)
- If you have to sell your shares at a loss, you could balance this against Income Tax or CGT.
- The investor may withdraw some or all of the funds invested in the previous year.
What are the qualifications for becoming an SEIS investor?
- The maximum investment in any number of qualifying firms is £100,000.
- The shares must be held for at least three years. If you don’t, you’ll get relief clawback.
- SEIS tax benefits cannot be carried forward.
- You must be a taxpayer in the United Kingdom.
What’s The Enterprise Investment Scheme (EIS)
EIS focuses on small-to-medium-sized start-ups with the goal of growing their business, allowing individual investors to spend up to £1 million every tax year while receiving a 30% income tax break on the amount invested. The maximum lifetime amount that an EIS business can raise is £12 million, or £20 million if the company is ‘knowledge intensive’ — often companies with substantial R&D costs.
What are The Benefits of EIS Investment for Me as an Investor
- The sale of shares is exempt from Capital Gains Tax (CGT) if the investor holds them for at least three years.
- It is feasible to defer all of their investment against CGT for up to a year before or three years after sale.
- The shares must be kept for two years before they are normally exempt from inheritance tax (IHT).
- If you sell your shares at a loss, you can deduct the loss from your income tax or capital gains tax.
- It is possible to recoup some or all of an investment made in the previous year.
What are the qualifications for becoming an EIS investor?
- In each tax year, the maximum investment is £1 million in any number of qualified enterprises.
- Shares must be held for a minimum of three years. If you do not follow this, you will face relief clawback.
- Your EIS tax credit cannot be carried over.
- You must be a UK tax payer.
- You are unable to communicate with the EIS firm. An employee, partner, or compensated director is considered a link.
- You cannot purchase shares from the market; they must be brand new.
What are the Differences and Similarities between SEIS & EIS?
They are comparable in that they both serve the same objective. To assist early-stage enterprises in attracting investment. So, what is the distinction between EIS and SEIS? Companies in the EIS category are in the later stages of development. SEIS focuses on firms in their early stages.
Early-stage enterprises can receive investments of up to £100,000 every tax year through SEIS. This could result in a 50% tax savings for the investment. In addition, the investor would be immune from capital gains tax on earnings from the sale of their shares. This is granted that they wait three years before selling the shares, whereas EIS concentrates on medium-sized startups. Each tax year, the investor might invest up to £1 million. This would result in a 30% tax savings, as well as the same capital gains tax exemption on share sale proceeds as with SEIS. Again, if they keep the shares for at least three years.
Startups seeking funding may become more appealing if they qualify for SEIS or EIS. Tax breaks for investors can be a huge incentive for them to participate in your firm. Learn about EIS and SEIS if you are an investor. This could assist you in making good investments that would benefit you more. It is vital to understand that SEIS investments will provide you with additional tax benefits because they are riskier.