Incentives to invest in small businesses

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In the Chancellor’s recent budget he announced that the Seed Enterprise Investment Scheme (SEIS) is to be extended without time limit.

The SEIS is an incentive to invest in new small company businesses and allows equity investors to obtain immediate tax relief on their investment.

The relief is available to individuals who subscribe for qualifying shares in a company which meets the SEIS requirements and is available for investments made after April 5, 2012.

Investors benefit from relief on their investment as their tax liability is reduced by 50 per cent of the cost of their shares, up to a maximum of £100,000. The relief can be carried back to the preceding tax year.

Additionally, relief from Capital Gains Tax is also available, as is reinvestment relief and Inheritance Tax Business Property. The shares must be held for a period of three years from the date of issue to avoid the withdrawal of relief and must be fully paid for at the time of issue.

In order to qualify for relief, the investor must meet certain conditions. These include the requirement that the investor or his associates must not be employees in the company, within a three year period, although they could be directors.

In addition to this, the investor or his associates must not own over 30 per cent of the company. Associates include immediate family members but siblings, unmarried couples and parents in law are not excluded and could qualify.

There are also several rules the company must satisfy in order for the investment to qualify. These include that the business must have fewer than 25 employees and assets of up to £200,000.

There are also requirements to ensure that the monies raised must be spent on qualifying business activities.

Contact Mairi Drummond for advice on mairi.drummond@renniewelch.co.uk or 01573 224391.