Tax Relief Information

We have successfully applied to HMRC for our proposals to qualify for tax relief on the purchase of shares. We have received from HMRC advance assurance that the venture is eligible for the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).

The information below is intended for illustration only and describes how Friends of The Ivy understand the workings of the schemes. We are not tax advisors and anyone seeking to utilise these schemes should seek the advice of a tax advisor.

Seed Enterprise Investment Scheme (SEIS)

The SEIS scheme applies to investments of £10,000 to £20,000 and has a total investment limit of £250,000. We will allocate this tax relief benefit on a ‘first come, first served’ basis. SEIS allows investors to claim up to three different types of tax relief:

• Income Tax Relief. The amount is equal to 50% of the value of the investment. The investor must owe at least this amount in income tax during the tax year of the investment, or in the year before.
• Capital Gains Tax Reinvestment Relief. The amount is equal to 50% of the capital gains tax due when a capital gain is made on sale of an asset and the proceeds are reinvested in the SEIS eligible investment.
• Loss Relief. The amount is equal to the initial investment, minus Income Tax Relief received, multiplied by the investor’s income tax bracket (eg. 40%). Alternatively, this can be offset against Capital Gains Tax liabilities in the year instead of income tax. This applies if shares are sold at a loss (or become worthless) after 3 years.

Using the example of an investment of £10,000 with £5,000 in income tax relief, investors could be reimbursed a further £2,000 (£5,000 x 40%) in Loss Relief, meaning the actual exposure on a £10,000 investment drops to £3,000. If applicable, then CGT Reinvestment Relief would result in even more tax relief.

Enterprise Investment Scheme (EIS)

The EIS scheme applies to investments of between £100 and £9,999. There is a limit of £1,000,000 on EIS investments but we do not anticipate reaching this limit. Like SEIS, EIS allows investors to claim tax benefits but the terms are slightly different:

• Income Tax Relief. The amount is equal to 30% of the value of the investment. The investor must owe at least this amount in income tax during the tax year of the investment, or in the year before.
• Capital Gains Tax Reinvestment Deferral Relief. This allows capital gains tax to be paid at a later date when a capital gain is made on sale of an asset and the proceeds are reinvested in the EIS eligible investment. Please note that the full CGT liability is still due, but gets deferred to a later date, unlike the SEIS scheme where 50% of the CGT liability is exempt from payment.
• Loss Relief. The amount is equal to the initial investment, minus Income Tax Relief received, multiplied by the investor’s income tax bracket (eg. 40%). Alternatively, this can be offset against Capital Gains Tax liabilities in the year instead of income tax. This applies if shares are sold at a loss (or become worthless) after 3 years.

Another very useful benefit is that once the Society’s shares have been held for two years, they are free of Inheritance Tax.

In order to benefit from the tax relief schemes, you must be a UK income and/or capital gains taxpayer with tax due to pay equal or greater than the amount of relief you are seeking. You can claim the relief in either the tax year you make the investment or the previous tax year. The date of investment will be the day the society accepts your application for investment after the share offer has closed, not the date on which you made the investment. The SEIS/EIS certificates will be issued four months after the business begins to trade or when 70% of the monies raised have been spent on the project, whichever is the sooner.

If you pay tax via PAYE, you send the certificate to the tax office that processes your employer’s payroll tax collection, and, if you do self-assessment, you claim the relief when completing your tax return (unless you want to backdate it for a tax year you have already filed a return for, in which case you have to contact HMRC directly). We cannot give tax advice and can only vouch that we have been advised that the investment is a valid investment for tax relief under the schemes mentioned above.

Anyone considering investing with tax relief in mind should seek the guidance of a tax advisor.