Angel investors are being urged to take advantage of tax breaks when investing in start-up companies after additional incentives were highlighted by tax officials.
The Seed Enterprise Investment Scheme (SEIS) offers generous tax incentives for backers of qualifying start-up companies, including 50 per cent income tax relief on investments up to £100,000.
Investors are also exempt from capital gains tax (CGT) when reinvesting back into the company before April 2014 – 12 months longer than previously thought – after an HMRC official spoke about the tax relief at an event to promote the SEIS last week.
Although HMRC said there had been no extension of the SEIS, certain investors will be able to avoid paying CGT on money put back into companies before April 2014 by using a process called ‘carrying back’.
The CGT holiday means tax breaks of up to 78 per cent could be available until next year, while investors will be able to potentially write off more than 100 per cent of any money put into a failed start-up company.
Angel investor Dale Murray told The Telegraph: “Investors only had part of the current tax year to benefit. The [CGT holiday] is a great way of kicking the scheme off,” she said.
“This will mean more high-growth start-ups getting much-needed funding, which can only be a good thing. It’s the world’s most generous scheme for angel investors,” she added.
The HMRC reminder on ‘carrying back’ follows criticism that take-up for the SEIS has been slow since its launch in April 2012, with some citing the £150,000 maximum investment per company as a factor. The SEIS offers significantly higher rates of tax relief than the existing Enterprise Investment Scheme (EIS), due to the higher levels of risk associated with investing in early stage companies.