The seed enterprise investment scheme (SEIS) is designed to help small companies raise modest amounts of funding (up to £150,000). The investor must subscribe for new shares issued by the company (not buy them from another shareholder), and in return he can claim income tax relief equal to 50% of the cost of those shares.
If the investor has made a capital gain in the same tax year as he makes the SEIS investment, up to 50% of the amount invested in SEIS shares can be set against that capital gain to reduce the CGT payable. This CGT reduction was 100% for gains in 2012/13, but is only 50% for gains arising in 2013/14.
That sounds wonderful, but there are a lot of conditions for the investor and the company to comply with before the SEIS tax relief can be given.
The first hurdle is to check if the company's trade will qualify for SEIS relief. Many 'safe' financial trades such as banking, money lending, accountancy or legal services are excluded. Also any trade where the company is likely to hold valuable property doesn't qualify such as; running hotels or nursing homes, farming, woodland management, property development or property dealing.
Businesses which are related to any of the excluded trades need to be looked at very carefully. For example running a public house can qualify, but if it lets residential rooms it could be classified as a hotel which would mean it doesn't qualify. An estate agent business may qualify, but a large part of an estate agent's business can be arranging mortgages, which is a financial activity that doesn't qualify. HMRC are prepared to provide assurance in advance of issuing shares as to whether a particular trade will qualify.
The second major hurdle is that the SEIS investor must not hold more than 30% of the company either alone, or together with relatives or other associates. Other shareholders can hold 30% or more of the company, but those shareholders will not be eligible for the SEIS tax relief.
An SEIS investor can invest up to £100,000 in a single tax year on which tax relief can be claimed, which can be spread over a number of companies.
Showing posts with label capital gain. Show all posts
Showing posts with label capital gain. Show all posts
Monday, 4 November 2013
Friday, 31 May 2013
Letting Business Tax Reliefs
The tax treatment of businesses which involve the letting of property is not consistent across all taxes and tax reliefs. It's not logical, but just because the letting business qualifies for one tax relief it will not necessarily qualify for an apparently similar tax relief.
For example if you have a property letting enterprise which you wish to transfer into a company in return for shares in the company, a capital gain will arise in your hands when you transfer the properties to the company. This gain can be rolled into the value of shares of the company if the property enterprise is deemed to be a 'business'. This relief is known as incorporation relief, but it will only apply if the business owner is more than just a passive property investor. The courts have decided that the business must have some substance in terms of turnover, be conducted on sound business principles with a view to a profit, and be activity pursued with reasonable continuity.
The holding of let properties is considered to be a 'business' for the inheritance tax, but it is excluded from the IHT relief called business property relief (BPR), as letting is considered to be mainly the holding of investments (i.e. the let properties). In order to qualify for BPR the business owner has to offer the tenants additional services which would generally only be available in a holiday letting business, bed and breakfast, or hotel business. Even then the owners of self-catering holiday cottages have to jump through some hoops to get the letting business to qualify for BPR.
Losses made in a property letting business cannot be set against profits or income from other sources, such as other trading businesses, interest or dividends.
Check with us as to whether your property business qualifies for a particular tax relief and don't assume anything.
For example if you have a property letting enterprise which you wish to transfer into a company in return for shares in the company, a capital gain will arise in your hands when you transfer the properties to the company. This gain can be rolled into the value of shares of the company if the property enterprise is deemed to be a 'business'. This relief is known as incorporation relief, but it will only apply if the business owner is more than just a passive property investor. The courts have decided that the business must have some substance in terms of turnover, be conducted on sound business principles with a view to a profit, and be activity pursued with reasonable continuity.
The holding of let properties is considered to be a 'business' for the inheritance tax, but it is excluded from the IHT relief called business property relief (BPR), as letting is considered to be mainly the holding of investments (i.e. the let properties). In order to qualify for BPR the business owner has to offer the tenants additional services which would generally only be available in a holiday letting business, bed and breakfast, or hotel business. Even then the owners of self-catering holiday cottages have to jump through some hoops to get the letting business to qualify for BPR.
Losses made in a property letting business cannot be set against profits or income from other sources, such as other trading businesses, interest or dividends.
Check with us as to whether your property business qualifies for a particular tax relief and don't assume anything.
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