Overview
The Government has various investment schemes for businesses to raise capital in a tax privileged environment.
- Enterprise Investment Scheme
- Seed Enterprise Investment Scheme
- Social Investment Tax Relief
- Venture Capital Trusts
There is a lot of detail to cover in a summary, so we refer you to HMRCs overview of schemes for businesses – see HMRC Guidance
Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme (EIS) is designed to help small, higher-risk companies raise finance by offering generous tax incentives to individual investors. Investors can receive Income Tax relief of 30% on investments of up to £1 million per tax year (or up to £2 million if at least £1 million is invested in knowledge-intensive companies). If the shares are held for at least three years, any gains on disposal are free from Capital Gains Tax (CGT). EIS also allows the deferral of CGT on other gains reinvested into qualifying shares and can provide loss relief if the investment fails, making it an attractive but specialist form of tax-advantaged investment.
Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) supports very early-stage start-up companies by providing enhanced tax reliefs to investors willing to take on higher levels of risk. Investors can claim Income Tax relief of 50% on investments of up to £200,000 per tax year, provided the shares are held for at least three years. In addition, gains on SEIS shares can be free from Capital Gains Tax, and a proportion of other capital gains can be exempt if reinvested into SEIS shares. These generous reliefs are intended to encourage funding for new and innovative businesses at the earliest stages of growth.
Social Investment Tax Relief (SITR)
Social Investment Tax Relief (SITR) is aimed at encouraging investment into social enterprises and charities that exist primarily to deliver social or community benefit rather than private profit. Investors may receive Income Tax relief of 30% on qualifying investments of up to £1 million per tax year, provided the investment is held for at least three years. Any gains on disposal of qualifying investments can be exempt from Capital Gains Tax, and losses may be offset against Income Tax or Capital Gains Tax. SITR helps channel private investment into organisations that address social challenges while still offering tax advantages to investors.
Venture Capital Trusts (VCTs)
Venture Capital Trusts (VCTs) are listed investment companies that pool investors’ funds to invest in a portfolio of small, unquoted or AIM-listed trading companies. Investors can receive Income Tax relief of 30% on investments of up to £200,000 per tax year, provided the shares are held for at least five years. Dividends paid by VCTs are generally free from Income Tax, and any capital gains on disposal of VCT shares are exempt from Capital Gains Tax. VCTs offer a more diversified route into smaller company investment compared with direct EIS or SEIS investments, although they still carry higher risk than mainstream investments.