We recently went to an investor day hosted by Xenos, the Welsh Angel Business Network. Sharon Omer-Kaye, Partner at Baker Tilly accountants and business advisers, gave a brilliant talk on tax efficient investments.
Sharon discussed a number of tax relief schemes for entrepreneurs and investors that we couldn’t wait to share with you. So without further ado, let’s dive straight in…
Note: These schemes are only available in the UK.
Business Property Relief
Business Property Relief (BPR) allows business owners and investors to pass on their business and assets free of Inheritance Tax. BPR is payable on the death of a business owner or investor, but can also be claimed on gifts of business property or assets.
BPR will provide significant relief for beneficiaries, but as Baker Tilly points out on their website, it’s a good idea to see how your business measures up sooner rather than later to make sure future beneficiaries don’t miss out…
“As with all areas of tax law, the rules are detailed and there are pitfalls for the unwary. However, with the IHT rate at 40%, the benefit of qualifying for BPR is significant and it could be very costly for beneficiaries of an estate if a business did not qualify for relief but could have done so with some small adjustments to how it operated.”
Check out the guidelines on gov.uk to learn more about qualifying for BPR.
Agricultural Property Relief
Similar to BPR, Agricultural Property Relief (APR) allows business owners and investors to pass on agricultural property, such as growing crops, farmland and farm properties, free of Inheritance Tax. APR does not cover machinery, livestock and harvested crops, amongst other things.
Check out the guidelines on gov.uk for more detailed information.
Seed Enterprise Investment Scheme
The Seed Enterprise Investment Scheme (SEIS) offers tax relief to investors in return for investing in small businesses and early stage startups. Investors can get relief on Income Tax, Capital Gains Tax (CGT), CGT Reinvestment Tax and Inheritance Tax, as well as Loss Relief should the investment fail.
Check out seiswindow.org for plenty of detailed information on how your startup can become SEIS compliant, where to find SEIS investment and how to become an SEIS investor.
Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) is similar to SEIS but is available to larger, more well established businesses and provides an opportunity to give and receive larger investments. However, income tax relief is lower for EIS investors (30%) than SEIS investors (50%).
Check out this infographic from Sapphire Capital Partners for a brief lowdown on the differences between EIS and SEIS.
Venture Capital Trust
A Venture Capital Trust (VCT) is a company that makes its money by investing in small companies not listed on the Stock Exchange. They are publicly traded, meaning investors can buy shares in a VCT and reap the rewards of the VCT’s investments.
Investors in VCTs are eligible for Income Tax relief at a rate of 30% and Capital Gains Tax relief on any gain they make when they dispose of VCT shares.
HMRC stipulates that at least 70% of a VCT’s assets are invested in ‘qualifying holdings’. According to financial service business Hargreaves Landsdown, “there are a number of rules surrounding what constitutes a qualifying holding, but the main ones are that the company must not have net assets of more than £15m, and must have fewer than 250 employees.”
Entrepreneurs’ Relief offers entrepreneurs the chance to pay less Capital Gains Tax when they sell or dispose of (eg give away as a gift, swap, or take compensation for) all or part of their business. Entrepreneurs’ Relief will reduce CGT to 10% on qualifying assets, instead of the normal rate of 18% or 28%.
Check out the guidelines from gov.uk to see if you qualify.
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