Private Equity

Question 1

What is an EIS?

Answer 1

An investment in a single, unlisted company.

Question 2

How much can be invested in an EIS?

Answer 2

Up to £1m.

Question 3

What are the tax benefits of EIS?

Answer 3

1. You can receive income tax relief of 30% as a deduction from your tax bill. (Which can be carried back)
2. Disposals are generally free of CGT if shares held for 3 years.
3. Gains made elsewhere can be deferred investing in EIS shares.
4. Business relief for IHT purposes is available after 2 years.

Question 4

What rules apply to EIS investments?

Answer 4

1. The company may have no more than 250 full-time employees when shares issued.
2. No tax relief given if more than 30% of the capital is acquired.
3. Gross assets of the company must not exceed £15m immediately before the issue of shares nor £16m afterwards.
4. The company must not have raised more than £5m under all venture capital schemes in the 12 months ending on date of investment.

Question 5

What is an SEIS?

Answer 5

A Seed Enterprise Investment Scheme. Relatively new initiative into even smaller companies. The risk of failure is greater, but the tax breaks are bigger.

Question 6

What are the tax benefits of an SEIS?

Answer 6

1. Up to £100,000pa can be invested & receive tax relief of 50% provided there is sufficient tax due against which the relief can be offset.
2. CGT gains rolled into an SEIS are eligible for total relief at 50%. Unlike an EIS, where the tax is deferred, here half the tax due is written off entirely.
3. IHT Business Relief is available after 2 years.

Question 7

What rules apply to SEIS?

Answer 7

1. The investment must be kept for 3 years.
2. The company must be an unquoted company (not listed on stock exchange) at the time the shares are issued.
3. The company cannot employ more than 25 full time staff.
4. The company should be no more than 2 years old & have assets of less than £200,000 before the investment is made.
5. To qualify, the company cannot be engaged in a precluded trade (inc. financial services, property development & commodities).

Question 8

What is a VCT?

Answer 8

Venture Capital Trusts are collective investments in smaller companies. Investors cash is combined & invested in a number of smaller companies providing diversification & reducing risk. Resulting in reduced tax relief benefit, but still generous.

Question 9

How much can be invested in a VCT?

Answer 9

Up to £200,000 pa.

Question 10

What are the tax benefits of VCTs?

Answer 10

Income tax relief of 30% (clawed back if sold within 5 years). No CGT on disposal, but no minimum period they have to be held. Not possible to roll over other gains like EIS & SEIS.

Question 11

What rules apply to VCTs?

Answer 11

1. Must be listed on the stock exchange.
2. All money raised must be employed within 2 years.
3. Any company invested into may have no more than 250 full time employees.
4. The company must not have raised more than £5m under all venture capital schemes in the 12 months ending on date of investment.
5. The VCT must not retain more than 15% of the income it makes.