Last year’s Autumn Financial Statement brought confirmation from the Treasury that the Government planned to introduce a new “Seed Enterprise Investment Scheme” (SEIS) that was likely to be of particular interest to all budding venture capitalists and business angels.

Detailed rules concerning the new scheme have subsequently been set out in the 2012 Finance Bill that has now made its way through Parliament and the new scheme will offer very generous income and capital gains tax (CGT) exemptions and reliefs where individuals invest up to £100,000 into young trading companies. The reliefs and exemptions available for qualifying investments in the current tax year are:

  • The income tax liability of the investor is reduced by 50% of the sum invested.
  • An investor is also entitled to exemption from CGT on a disposal of the investment.
  • Gains arising on the disposal of any asset in tax year 2012-13 will be wholly or partially exempt from CGT if a qualifying investment in SEIS eligible shares is made.

In order to qualify for relief the investor must not be too closely connected to the relevant company and must make their investment in exchange for new ordinary shares in the company (which must then be held for three years). In addition the company must be relatively young and have only a limited number of employees and assets. Such investments are therefore likely to be risky and potential investors will need to give careful consideration as to whether such investments are suitable for them, however, the potential tax incentives will be attractive to investors.

In addition to the SEIS, the tax system offers similar tax reliefs under the Enterprise Investment Scheme and through Venture Capital Trusts.