Investors offered 50 per cent tax relief on money placed in start-up companies
From 6 April, it will be possible to invest in Seed Enterprise Investment Schemes, which are designed to get people to invest in the next generation of entrepreneurs. Investors who put money into a start-up with SEIS status will get up to 50 per cent tax relief.
Tim Weller, a founder of Incisive Media, a financial business information company, says: "This will encourage people who've made it to re-invest, to mentor those folk who are starting out."
The attractions for higher-rate tax payers are clear as the top rate of tax is now 50 per cent. Revenue and Customs says people can invest up to £100,000 annually via a SEIS, and will be able to offset 50 per cent of the amount invested against existing income tax liability, assuming they have sufficient liability. Whether they're a higher or lower rate taxpayer makes no difference.
The shares must be held for at least three years for the relief to be retained. If they are disposed of at a gain, there is no capital gains tax to pay.
There will be also be a capital gains holiday, an extra one-off tax incentive for the 2012/13 tax year. If the existing asset results in a capital gain, that amount can be invested in a SEIS in the same year, exempting it from capital gains tax. This brings the total tax break available up to 78 per cent.
However, investors won't qualify if they hold more than 30 per cent of the SEIS company. Such companies must be less than two years old and be carrying on or preparing to carry on a qualifying trade. They must have less than £200,000 in gross assets and no more than 25 employees. A company can raise a maximum of £150,000 in total under the SEIS.
There aren't a great deal of SEISs on the market currently. However, Ascension Media Group announced earlier this month that it is to launch an SEIS investing in the creative and digital technology sectors.
It is also possible that the draft legislation may be subject to some change before it is finally enacted.
David Gauke, Exchequer Secretary to the Treasury, said: "The new Seed Enterprise Investment scheme aims to encourage greater levels of investment in seed-stage businesses. We hope the scheme will also result in more people considering starting their own business."
Mr Weller believes "it's a fantastic opportunity to back the future stars of business".
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