10 - Indirect Investments (K)

Question 1

What is the EIS tax relief amount and investment limits?

Answer 1

30% of investments up to £1m in a tax year (£2m knowledge intensive)

Question 2

What is the CGT treatment on disposals of qualifying EIS shares?

Answer 2

Usually exempt, as long as the shares have been held for 3 years

Question 3

How long must qualifying EIS shares be held before being disposed of, to be CGT exempt?

Answer 3

3 years

Question 4

At what point does IHT business relief become available for shares quoted on AIM and unquoted EIS shares?

Answer 4

After 2 years of ownership

Question 5

Investors must not be connected with the company or its trade when subscribing for EIS shares. How else can they gain control of the company?

Answer 5

Becoming a paid director, after buying the shares

Question 6

EIS investors have to be UK-resident.

True or false?

Answer 6

False

Question 7

What is the maximum gross assets amount allowable to qualify as an EIS company?

Answer 7

£15m (and no more than £16m after)

Question 8

An EIS investment can only be made in a company that has been trading for how long and at what level of annual turnover?

Answer 8

7 (10 knowledge intensive), and only after annual turn over reaches £200,000, unless the investment is worth 50% of the turnover and the money is required to enter a new product market or geographic market. then age limit does not apply.

THIS ALSO APPLIES TO VCT.

Question 9

Where must a company be permanently established in order to qualify as an EIS company?

Answer 9

UK

Question 10

The company must be listed in order to qualify as an EIS.

True or false?

Answer 10

False, it must be unlisted. (AIM and PLUS shares count as
unlisted)

Question 11

At the time EIS shares are issued, how many employees can the company have?

Answer 11

Less than the equivalent of 250 full-time employees (500 for a
knowledge-intensive company)

Question 12

The EIS company must carry on a qualifying trade. Name some excluded trades (7)

Answer 12

– dealing in land, property development and farming;
– dealing in shares and several other investments;
– banking, insurance and various other financial activities;
– legal and accountancy services;
– operating or managing hotels or residential care homes;
– leasing; and
– shipbuilding.

Question 13

Tax relief for investment into an EIS can be withdrawn; name the 3 main reasons why.

Answer 13

1. Shares disposed within 3 years (unless to spouse or upon death)
2. Investor receives value from the company within a period of 1 year before and 3 years ending after the issue of shares, or 3 years after the company started trading if later.
3. If company ceases to remain a qualifying company

Question 14

What is meant by “receiving value”?

Answer 14

Selling shares back to the company and obtaining any loan, gift or similar benefit from the company. Normal dividends do not count as receiving value for this purpose.

Question 15

Individuals can defer chargeable gains on any assets by reinvesting the gain in shares that qualify under the EIS. What is the maximum potential tax relief available if they do this?

Answer 15

58% (30% income tax and deferral of a CGT liability of up to 28% (for a residential property gain)).

Question 16

How can an investor defer on CGT with an EIS investment?

Answer 16

Reinvesting the gain in shares.

Question 17

Capital gains tax deferral on EIS shares:
1. Where must the investor be residnet?
2. When must the reinvestment take place?
3. What is the upper limit on the gain to be deferred?
4. When is the deferred gain brought into charge?
5. In which circumstance might a charge be triggered and no longer deferred?

Answer 17

1. UK.
2. The reinvestment must take place within a period starting one year before and ending three years after the disposal.
3. No upper limit
4. When the EIS shares are disposed of
5. The charge is triggered if the investor ceases to be UK resident within three years of the issue of the shares, unless the period of non-residence is a result of employment outside the UK and the investor returns to the UK within three years without having disposed of
   the shares.

Question 18

Which one is targeted at smaller, start-up companies? EIS or SEIS?

Answer 18

SEIS

Question 19

What is the income tax relief on SEIS shares?

Answer 19

50% on qualifying investments of up to £200,000 in a
tax year.

Question 20

Provided they are not otherwise connected (under the 30% shareholding restriction), an investor is permitted to be a paid director at the time shares are subscribed for in which scheme; EIS or SEIS?

Answer 20

SEIS

Question 21

For a company to qualify as a SEIS:
1. Trading for how long?
2. Which type of trade?
3. How much in gross assets?
4. How many employees?

Answer 21

1. Less than 3
2. Genuine new trade
3. No more than £350,000
4. Less than the equivalent of 25 full-time

Question 22

What is the CGT treatment on reinvested gains in SEIS shares?

Answer 22

50%

For example, an investor who reinvests gains of £200,000 will pay CGT on only £100,000; the other £100,000 will be exempt from CGT.

Question 23

How soon must reinvestment take place in SEIS shares to qualify for CGT relief?

Answer 23

Within same tax year that the gain arises.
Or…
The following tax year if relief is carried back to the year of the gain

Question 24

Can a widget manufacturer that owns its factory qualify under the EIS or SEIS?

Answer 24

Yes, either

Question 25

Can a company offering legal and accountancy services qualify under the EIS?

Answer 25

No

Question 26

Can a company offering banking, insurance and various other financial activities, qualify under the EIS?

Answer 26

No

Question 27

What is a knowledge-intensive company?

Answer 27

One that carries out a significant amount of research, development or innovation