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18 Jan

Incentives For Private Equity Investors

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Startups and entrepreneurs are a great asset for any country. New business and ideas help introduce new sources of wealth into an economy, first by creating new products or services for purchase, and second by providing incomes for people who need jobs. In the UK, SMEs accounted for 99.9 percent of all private sector business, 59 percent of private sector employment and 48 percent for private sector turnover – which indicates the enormous importance in relation to both job creation and tax revenue that these type of businesses play.

This is one of the key reasons why there are now a rich amount of incentives available for both business and individuals investing in this sector of which private equity investments form a large part. Here’s how:

Venture Capital Trusts

Venture Capital Trusts (or VCTs) are companies whose shares trade on the London stock market. VCTs aim to make money by investing in other companies, typically companies that are smaller and looking to further develop their business.

To encourage the success of VCTs and increase interest in others to invest in them, the UK government offers tax breaks to those who invest in VCTs. If you are a UK tax payer, you can receive a tax rebate of up to 30% when you invest in a Venture Capital Trust for at least five years. Keep in mind that this rebate is only available when you invest in a new issue of shares in a VCT.

Entrepreneur Relief

If you own at least 5% of the shares of a UK business, where you are a director, partner or employee, you may be eligible to apply for Entrepreneurs’ Relief. Entrepreneurs’ Relief is a tax relief from the UK government for individuals and some trusts who sell all or part of a trading business that they have owned for at least 12 months. This relief reduces the effective rate of capital gains tax to 10%.

Enterprise Investment Scheme

To recognise the importance of Angel Investing in the UK, the government has introduced the Enterprise Investment Scheme (or EIS). This scheme can gain both income tax and capital gains tax relief to investors who subscribe for eligible shares in small unquoted companies that qualify under the scheme.

The Enterprise Investment Scheme includes 30% income tax relief on up to £1,000,000 of investment per tax year, exemption from capital gains tax on disposal of EIS shares after the end of the three year relevant period, and unlimited capital gains tax deferral in respect of the disposals of other assets on amounts reinvested in EIS shares.

Seed Enterprise Investment Scheme (SEIS)

Lastly, in 2012, the UK government introduced a new scheme for angel investors called the Seed Enterprise Investment Scheme (or SEIS). This new scheme offers up to 50% relief on making investments in very small businesses with growth potential that are at a very early seed or startup stage, which have only just started trading and may have little or no revenues and very few assets.

The SEIS scheme also offers exemption from capital gains tax on gains realised from disposals of other assets, inheritance tax relief for SEIS investments, and exemption from capital gains tax on disposal of SEIS shares after three years.

As with EIS, there are a number of requirements in relation to the investors. For example, investors must be unconnected with the company and under SEIS the investor, together with associates, cannot own more than 30% of the ordinary share capital, the issues share capital or the voting power.

These tax reliefs placed by the UK government are great incentives as an investor to continue investing in entrepreneurs in the country, thus increasing the amount of success of entrepreneurs and startups in the UK. Do keep in mind that as with the government tax relief schemes, it’s important to carefully look at all the requirements for eligibility before applying. All tax reliefs carry conditions and advice should be sought when deciding which to pursue.

Read 689 times Last modified on Monday, 18 January 2016 19:42
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