Investors will get a 50 per cent tax break by investing in start-up companies, Chancellor George Osborne announced in his Autumn Statement on Tuesday.
The Seed Enterprise Investment Scheme (SEIS, launching in April next year, will give an income tax break to those who individually invest up to £100,000, or £150,000 per company, in qualifying companies.
In addition, the government is scrapping capital gains tax (CGT for the first 12 months to encourage investors to commit money to these start-ups. The annual CGT exemption limit will also be frozen at £10,600 for 2012-13.
Osborne comments: 'This will provide for a CGT exemption on gains realised on disposal of an asset in 2012-13 and invested through SEIS in the same year.'
Tony Bernstein, tax partner at HW Fisher Company, says that the launch of the SEIS proves the Autumn Statement was ‘deeply pro-business’.
‘Adding the capital gains tax waiver to a 50 per cent income tax relief will mean up to 78 per cent tax relief for investments into qualifying businesses of £100,000 or less,’ he says. ‘This is a significant tax giveaway and will provide a strong incentive for investment into the UK’s high growth start-ups
David Mott, investment director at Oxford Capital Partners, comments: ‘Angels will fly again following the chancellor's new Seed Enterprise Investment Scheme proposals.
‘By allowing 50 per cent income tax relief and CGT relief of 28 per cent in 2012-13, people backing start-up businesses will only be risking 22 per cent of the capital they invest in a start-up. ‘
In the March Budget, the government announced it would attempt to simplify the rules of EISs, and refocus both these and venture capital trust (VCT schemes to ensure they are targeted at genuine risk capital investments.
In his Autumn Statement, Osborne announced that the government will allow VCTs to invest more than £1 million in a single company in a 12 month period, in a bid to limit the administrative burden. It was also announced that VCTs can invest in companies that employ up to 250 people, where previously the maximum was 50 employees.
Ian Sayers, director general of the Association of Investment Companies, says this decision demonstrates the chancellor’s commitment to reducing ‘red tape’ in the sector.
‘Making this change will significantly enhance the capacity of the sector to support entrepreneurial businesses. The impact of this change should not be underestimated – it could transform the VCT sector.’
He adds: ‘The burden of agreeing investment terms with multiple funding partners significantly increases costs. Removing this limit will mean individual VCTs can invest more efficiently, grow in size and secure economies of scale. At the same time, small and medium-sized enterprises (SMEs will be more able to identify a one-stop-shop partner able to meet their funding needs.’
Patrick Reeve, managing partner at Albion Ventures, comments that the removal of this funding restriction will increase flexibility and encourage VCTs to grow.
‘Ultimately, it could result in increased consolidation in the industry, he adds. ‘With current average size of a VCT at £21. 8 million, we believe that this could rise to potentially rise to £50 million following the removal of this restriction, leading to increased economies of scale, and greater diversification – all of which would be good for the retail investor.
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