RSM Tenon: Could your friends invest in your business?
|
|
At a time when new businesses are finding it increasingly difficult to raise finance many are turning to friends and business contacts for assistance in funding. Even if bank funding is available the cost of borrowing has risen dramatically and therefore this can often be a more appropriate source of funding for businesses.
You might be reluctant to seek funding from your friends, but what if you could offer them generous tax reliefs on their investment as well as the possibility of selling their shares tax-free or reducing their inheritance tax bill. The Enterprise Investment Scheme (EIS) and the newly announced Seed Enterprise Investment Scheme (SEIS) is designed to encourage individuals to invest in “small” trading companies. The government aims to encourage investment through generous tax reliefs. The existing EIS provides for 30% income tax relief on the investment; and after three years any gain made on the disposal of shares is exempt from capital gains tax. Additionally, individuals who subscribe for qualifying EIS shares can defer payment of an existing capital gains tax bill. It is important to understand that EIS tax relief is unlikely to be available where the investment is made by a spouse, parents or children, but it may be available for an investment by other relatives, friends and acquaintances. Although your immediate family might not be able to claim tax relief on their investment, it might be possible to issue them with shares that pay more than they are getting from their existing savings (and less than you are currently paying your existing lenders) and also have the potential to reduce your inheritance tax bill by 40%. From 6 April 2012 the Government is introducing an additional scheme called the Seed Enterprise Investment Scheme which is similar to the existing EIS scheme but is targeted at the smallest new companies. These companies must have been incorporated for less than 2 years at the time of the investment and have gross assets of less than £200,000 before the investment and have less than 25 full time equivalent employees. The maximum that a company can raise through this route is £150,000 and the business must be carrying on new trading activities. The tax relief for these investments is 50% of the amount invested subject to a £100,000 cap. EIS or SEIS will not be appropriate in all circumstances and not all businesses will qualify as there are rules regarding the types of business that will qualify. However, EIS and SEIS are generous reliefs that should not be overlooked. It is essential that any investment is structured correctly and the correct procedures followed as failing to do so could mean that the tax reliefs could be lost. For further information please contact Steve Crompton, Director – Taxation Services on 07790 840 394 or steve.crompton@rsmtenon.com More articles in
Sectors
CommentsIf you'd like to leave a comment, please register now for free or login
|
