Which Investment Relief is for you: IR, ER, SEIS or EIS?

If you are a high rate tax-payer you might be looking for ways you or your accountant can reduce your income tax bill. One way of doing this is through investing in a business. Luckily, there are many tax-relief schemes out there to make this activity more attractive. We will be explaining the different investment relief schemes available to help you make the right choice. 

If you are still confused about which investment scheme to choose you can take help from a reliable tax accountant.

Related: An accountant can improve the financial effectiveness of an organisation and help businesses make better business decisions. Learn more about an accountant role. 

Investment Relief Schemes

1. Entrepreneur’s Relief (ER)-

• Entrepreneur’s Relief (ER) is a Captial Gains Tax relief available to individuals, not companies. 
• It reduces the Capital Gains Tax on qualifying business disposals to 10%, as long as the business has been in their ownership for 2 years and they own at least 5% of the shares and voting rights. 
• It’s pertinent only to the disposal of qualifying business assets; not investments, non-business assets or carried interest gains. 
• There is a lifetime cap of £ 1 million for Entrepreneur’s Relief applicable from 11th March 2020. 

Related: Is the current CGT regime a tool for the wealthy to pay less tax?

Your Personal Tax Accountant will be qualified to advise you on how to take advantage of the ER if you think this is the most appropriate tax-relief option for your situation.

2. Investor’s Relief (IR)

• Investor’s Relief (IR) is a Captial Gains Tax relief available to individual investors. 
• It reduces the Capital Gains Tax on the disposal of investments of ordinary shares to 10%, as long as the investments in ordinary shares were made on or after 17th March 2016 on disposals carried out after 6th April 2019 and held for at least 3 years. 
• There is a lifetime cap of £10 million for Investor’s relief.
•  Investor’s Relief is different from the Entrepreneur’s Relief in that Investor’s Relief is intended for investors who are not actively involved in the business. There also isn’t a minimum requirement for what percentage of shares you must own to avail this relief.

Related: Capital gains tax is a tax levied on the profit you earn when selling an asset that has increased in value. Learn more from our guide to Capital Gains Tax (CGT).

It’s important that you get the advice of an experienced accountant in London to make sure that this is the correct investment relief route for you and advise you of the best possible scheme that is applicable to you.

Video: A Quick Guide To SEIS And EIS Tax Relief

If you are starting a new business and are looking for funding, it is very important that you watch this video to learn more about SEIS and EIS.

3. Enterprise Investment Scheme (EIS)

• The Enterprise Investment Scheme gives tax incentives to individual investors who buy new shares in small, unquoted companies. These tax incentives can be in the form of Income Tax Relief and Capital Gains Tax relief for investors 
• Investors can get Income Tax Reliefs up to 30% on the cost of shares for the year in which the investment is made. The maximum investment an investor can make is £ 1 million as of 2013. It’s even possible to reduce an investor’s tax liability to zero through EIS relief. 
• If investors hold onto their shares for a minimum of three years, and if Income Tax Relief has been given and not withdrawn, then no  Capital Gains Tax is charged on the gain of disposal. 
• Capital Gains Tax can be deferred if the proceeds are invested in EIS shares. 

Related: Learn how to minimize Capital Gains Tax when selling a property through our guide.

For this form of investment relief, you will need the assistance of your accountant, or specifically, tax-saving accountants who will be able to get the necessary approval from HMRC that the company you wish to invest in meets the EIS criteria.

4. Seed Enterprise Investment Scheme (SEIS)

• The Seed Enterprise Investment Scheme gives tax incentives to individual investors who buy shares in new companies, issued on or after 6th April 2012. These tax incentives can be in the form of Income Tax Relief and Capital Gains Tax relief for investors 
• Investors can get Income Tax Reliefs up to 50% on the cost of shares for the year in which the investment is made. The maximum investment an investor can make is £ 100,000. 
• If investors hold onto their shares for a minimum of three years, and if Income Tax Relief has been given and not withdrawn, then no  Capital Gains Tax is charged on the gain of disposal. 
• Capital Gains Tax can be deferred if the proceeds are invested in SEIS shares. 
• If a company issues shares through the SEIS scheme, they can also issue shares under the EIS scheme as long as the qualifying conditions are fulfilled. 

If you would like to know more about which of these investment relief schemes is right for you, contact us to guide you through each scheme. 

Clear House Accountants are a specialist tax and accounting firm that can help you maximise tax savings through innovative methodologies. Contact us to learn more.

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