Venture capital

Question 1

What are EIS, SEIS, VCT

Answer 1

Tax efficient investment schemes.
Available to individuals who provide venture capital finance to companies
*Enterprise Investment Scheme
*Seed EIS
*Venture Capital Trusts
> Think of VCT as a quoted Co owning lots of smaller EIS’ > spreads the risk

Question 2

What type of shares?

Answer 2

EIS/SEIS - Subscribe for new, fully paid up ordinary shares in a qualifying company for cash
VCT - Subscribe for new ordinary shares in a quoted company that invests in qualifying ocmpanies

Question 3

What must the company have?

Answer 3

Objectives to grow and develop over the longer term.

Investment must carry risk that the investor will lose capital.

Question 4

Qualifying companies for EIS/SEIS/VCT?

Answer 4

• Unquoted UK co with a qualifying trade
• Unquoted UK co with a ‘new’ qualifying trade (trade has been carried on for less than 2 years)
• Investee companies = as for EIS

Question 5

Qualifying trade?

Answer 5

EIS * Commercially trading with a view to make a profit
* NOT carrying on an excluded activity such as property development, farming, financial activities, gas/fuel etc
* Does not control/under control of another Co
*Gross assets of no more than £15m before (£16m after) the share issue
*Less than 250 full time employees (less than 500 if KIC)
*Raised no more than £5m (£10m if KIC) under EIS and VCT in past 12 months
*Raised no more than £12m in total under EIS/VCT (£20m if KIC)
*Co uses money within 2 years of share issue
* First EIS/VCT monies raised are within 7 years of first commercial sale (10 yrs from turnover of £200k if KIC)
SEIS * similar to EIS, but also, gross assets of no more than £200k before the share issue
* Less than 25 full time employees
* Not previously raised funds under EIS or VCT
* Raised no more than £150k under SEIS
* Co uses money within 3 years of share issue
VCT * investee companies = same for EIS

Question 6

What are the 3 different types of tax relief?

Answer 6

1. Income tax relief
2. CGT exemption
3. EIS/SEIS reinvestment relief

Question 7

Income tax relief for EIS

Answer 7

EIS - tax reducer max £1m (£2m KIC) * 30% (reduce IT to nil - no repayment)
Tax relief in tax year of investment or c/back to previous tax year
Claw back of IT relief if sold within 3 years (via special assessment)
Dividends are taxable
Can use share loss relief to offset capital loss against income of current year and/or prior year
Need to be UK resident for IT relief

Question 8

Income tax relief for SEIS

Answer 8

SEIS
*Tax reducer max £100k * 50% (reducing IT to nil, no repayment)
Tax relief in year or c/back to previous tax year
No relief can be claimed until the company has spent at least 70% of the funds invested
Claw back of IT relief if sold within 3 years (by adjusting the assessment for the year of relief)
Dividends taxable
Can use share loss relief to offset capital loss against income of current yr and/or prior year

Question 9

Income tax relief VCT

Answer 9

Tax reducer max £200k *30% (reducing IT to nil, no repayment)
Tax relief in tax year of investment - no carry back!
Claw back relief if sold within 5 years (by adjusting the assessment for the year of relief)
Dividends exempt (from first £200k of VCT shares purchased pa)
VCT relief given first then EIS then SEIS

Question 10

CGT Exemption - EIS

Answer 10

Gain exempt if held for 3 yrs

Capital losses allowable (no min. holding period and cost reduced for EIS relief not withdrawn)

Question 11

CGT Exemption - SEIS

Answer 11

Same as EIS:
Gain exempt if held for 3 yrs
Capital losses allowable (no min. holding period and cost reduced for EIS relief not withdrawn)

Question 12

CGT Exemption - VCT

Answer 12

Gain exempt from CGT (no minimum holding period)

Capital losses not allowable

Question 13

Qualifying investor SEIS/EIS

Answer 13

Cannot be connected with the company
Connected = investor and associates hold >30% OSC/votes, or e’ee/non-qualifying director, in 2 yrs before and up to 3 yrs after investment
Qualifying director = receives either no or reasonable remuneration (including benefits) from the Co
At the time of investment, indiv should hold no other shares in the co

Question 14

VCT Qualifying investor

Answer 14

Age 18, at the time of investment should hold no other shares in the company

Question 15

EIS reinvestment relief

Answer 15

Investor UK resident
Sell ANY asset
Reinvest GAIN in EIS shares
1 year before and up to 3 years after disposal
Gain NOT taxed
Held over and taxed: when EIS shares sold, OR if cease to be a UK resident <3yrs, if shares no longer eligible <3yrs, or co no longer qualifies <3yrs
Can be connected with a co for deferral relief

Question 16

SEIS reinvestment relief

Answer 16

Gain on disposal of an asset is EXEMPT if there is a SEIS investment during the year
Max relief is 50% of the SEIS investment, to a max of £100k. IT relief must also be claimed
Max exempt gain p.a. is therefore 50% * £100k = £50k
If SEIS IT relief is withdrawn the reinvestment relief is also withdrawn (by adjusting the computation for the yr of the original disposal)

Question 17

VCT reinvestment relief

Answer 17

n/a