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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 1 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. 2 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 3