The government has announced that both of the investment incentives ‘Enterprise Investment Scheme’ (EIS) and ‘Venture Capital Trust’ (VCT) have been extended by 10 years. Originally, the two popular investment incentives which offer numerous tax breaks were due to expire at 6 April 2025.
The qualifying companies must issue the shares before a certain date, which is known as the sunset date, to be eligible to claim tax relief under EIS and VCT. The previous government were already planning to extend this to 2035 and now the current government have issued a statement confirming this extension is going ahead.
Now that we have clarity on the matter, both businesses as well as investors have assurance over the availability of the tax reliefs that many small businesses use for funding.
Both EIS and VCT afford investors income tax relief of 30% in addition to potential exemption from Capital Gains Tax (CGT). It must be noted, these investments are mostly considered high risk, so in the unfortunate event that a company fails, tax relief is available on a loss made on an EIS investment, subject to adjusting for income tax given and not withdrawn.
A bizarre direct statement from the press release states: “The government recognises the risk that investment in early-stage companies carries, so investors are offered loss relief through the EIS as long as shares are held for at least two years.”
Under the current rules in place, the loss relief is not beholden to a minimum holding period to apply. This would be unfair to the investors that have invested in companies that have failed early on and would appear to contradict the spirit of the EIS. It is not yet clear whether this is a mistake or an inclination towards a change the government is intending to announce in next month’s Budget.
To discuss how you can utilise Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT), please contact SFB on 03333 444 171 or enquiries@sfb.group.
