Download SOCIAL INVESTMENT - A comparison of the principal

SOCIAL INVESTMENT - A comparison of the principal tax reliefs available for investors
SITR
Social investment tax relief
Nature of
investment
EIS
Enterprise investment scheme
SEIS
Seed enterprise investment scheme

EIS relief may be available for an investment
by way of subscription for shares in an
unquoted trading company

SEIS relief may be available for an
investment by way of subscription for shares
in unquoted or AIM company

Investment may be made directly into a
company limited by shares or through an EIS
Fund

Share may carry limited preferential rights to
dividends.
 If the investment is in debt, it must be
subordinated.


No arrangements to protect against normal
investment risks.
No arrangements to protect against normal
investment risks.
 No arrangements to protect against normal
investment risks.


No arrangements for sale at end of first three
years.
No arrangements for sale at end of first
three years.
 SITR may be available for investment by way
of subscription for shares or debt in a
charity/CIC/BenCom/accredited social impact
contractor *
 Shares - can be redeemable but no priority or
fixed dividend and no priority on winding up.
VCT
Venture capital trust
 Tax relief may be available for an
investment by way of subscription in a fully
listed venture capital trust (which is a
company limited by shares)
 No arrangements for sale at end of first three
years.
Nature of relief and Rate of relief
Income tax
relief
 Income tax relief @ 30% of investment.
 Income tax relief @ 30% of investment.

Income tax relief @ 50% of investment.
 Income tax relief @ 30% of investment.
 Relief can be made up to 5 years post
investment.
 Dividends subject to income tax in usual way.

Relief can be made up to 5 years post
investment.
 Dividends on qualifying investment exempt
from income tax.

Dividends subject to income tax in usual
way.
 Dividends and other income from investment
subject to income tax in usual way.
CGT deferral
relief
CGT hold over relief (deferring CGT liability) on
disposal made 2014-2019 and SITR investment
made one year before or three years after
disposal. No need to make income tax relief
claim.
CGT hold over relief where EIS investment made
one year before or within three years after EIS
Investment including entrepreneur's tax relief.
CGT re-investment relief: originally available for
investment made in 2012-13 now available at
half the rate for 2013-14.
CGT deferral relief only available for
investment pre 2004.
CGT on
disposal of
investment
No CGT on gain on SITR qualifying investment.
No CGT on gain made on EIS qualifying
investment.
No CGT on gain made on SEIS qualifying
investment.
No CGT on disposal of shares in VCT (old or
new shares).
Minimum
duration of
investment
Three years
Three years
Three years
Three years
Annual max
investment for
investee
£1m pa
£1m pa
£100k pa
£200k pa
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SOCIAL INVESTMENT - A comparison of the principal tax reliefs available for investors
SITR
Social investment tax relief
EIS
Enterprise investment scheme
SEIS
Seed enterprise investment scheme
VCT
Venture capital trust
Max qualifying
investment for
investee entity
£290k in 3 years (proposed to increase to £5m in
1 year, with a total maximum of £15m, from April
2015)
Characteristics
of investee
entity
 ‘‘Social Enterprise’ i.e. Charity/CIC/BenCom

Company limited by shares

Company limited by shares
 Fully listed company
 Not controlled by another unless that other is
also a social enterprise

Unquoted (but could be traded on AIM)

Unquoted (but could be traded on AIM)
 Not close.

Trading


Trading (but not for more than 2 years) or
research and development
 Income derived wholly or mainly from
shares or securities.
Longer list of excluded businesses than that
for SITR

Not controlled by another
 Distributes 85% income.

Fewer than 25 employees
 Not more than 15% portfolio in one
company.

Not more than £200,000 gross assets

Must not have had EIS or VCT investment

Excluded activities substantially as for EIS
 Must be trading i.e. on commercial basis with
a view to profit or commence trading within
two years. No HMRC approval until trade has
commenced for a minimum period.
£5m in 1 year
 Excluded trades (20%+) include:
o dealing in land and securities;
o financial activities (other than loan to social
enterprises);
o property development;
o Generating electricity for FIT;
o Road freight;
o providing services to controller who carries
on excluded activities.
£150,000
N/A
 70% portfolio in qualifying investee
companies and for shares acquired post
2011 70% must be eligible shares
(ordinary?).
 Qualifying companies in which a VCT may
invest:
o £15m gross assets max pre investment
and £16m post;
o Unquoted (can be AIM);
o Qualifying trade i.e. not dealing on land or
securities; financial activities; property
development; farming; hotels or nursing
homes; ship building, coal and steel
production; FiT;
o independent ie not controlled;
o fewer than 250 employees;
o not an enterprise in difficulty!
 Fewer than 500 FTE employees (group test).
 Max gross assets £15m pre investment and
£16m post (group test).
 £5m max investment by VCT in one
company.
Characteristics
of investor
 Individual
 Must subscribe for shares or debt instrument
 During one year pre and three years post
investment must not:
o own more than 30% ordinary share capital,
loan capital or voting rights. Includes
associates (not siblings); or
o be employed by, be a partner of or trustee
of, or paid director of investee entity.
 May not receive "value" from investee entity or
from connected person.




Individual
Must subscribe for shares
During one year pre and three years post
investment must not:
o own more than 30% ordinary share capital,
loan capital or voting rights. Includes
associates (not siblings); or
o be employed by, be a partner of or trustee
of, or paid director of investee entity.
May not receive "value" from investee entity or
from connected person.




Individual
Must subscribe for shares
During one year pre and three years post
investment must not:
o own more than 30% ordinary share
capital, loan capital or voting rights.
Includes associates (not siblings); or
o be employed by, be a partner of or trustee
of, or paid director of investee entity.
May not receive "value" from investee entity
or from connected person.
 Individual
 Must subscribe for shares qualifying for VCT
relief.
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SOCIAL INVESTMENT - A comparison of the principal tax reliefs available for investors
SITR
Social investment tax relief
EIS
Enterprise investment scheme
Use of invested
monies
Must be used for relevant trade within 28 months
by investee or 90% owned subsidiary which is a
qualifying social entity.
Must be used for an existing qualifying trade or for
the purposes of preparing to carry on such a trade.
Availability of
multiple reliefs
No EIS on SITR investment
Comments
Debt not entitled to IHT Business Property Tax
relief; shares could be.
SEIS
Seed enterprise investment scheme
Must be used within three years in new
qualifying trade; R&D; or preparing for new
qualifying trade
VCT
Venture capital trust
Investment in qualifying company
SEIS and EIS or VCT once spent 70% of the
SEIS qualifying investment.
No SEIS after VCT or EIS investment
Loss relief may be available on shares disposed of
at a loss
Loss relief may be available on shares disposed
of at a loss
Loss relief may be available on shares
disposed of at a loss
HMRC must authorise social entity to issue
compliance certificate to investors.
Financial services legislation
Financial
Promotion
Order
Yes
Yes
Yes
Yes
Regulated
Activities Order
Yes
Yes
Yes
Yes
Collective
Investment
Scheme
Potentially depending on the nature of the
investment
No
No
No
*Note: An "accredited social impact contractor" is a company limited by shares that is accredited under the Income Taxes Act 2007 as a social impact contractor. This note makes no further
comment.
DISCLAIMER - Please note that the above is a summary only. Other conditions not referred to in this document must be met before any relief is
available. This document must not be relied on by any person for any purpose.
© February 2015
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