Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.
In the bloodstock industry the trading tends to focus on the following areas of opportunity:-
- Foal pinhooking, whereby a thoroughbred foal is bought at around 9 months old with the intention of it being sold as a yearling some nine months later.
- Purchase of fillies and broodmares, with the intention that they will be resold in foal the following sales season.
Investment in bloodstock is high risk, but for UK taxpayers, trading through a company that has Enterprise Investment Scheme (EIS) status, the risk can be considerably reduced through tax reliefs.
The headline benefits of EIS tax relief for UK taxpayers include;
Income Tax Relief: Provided an EIS qualifying investment is held by an individual for no less than three years from the date of issue, or three years from commencement of trade, if later, an individual with no more than a 30% interest in the company can reduce their UK income tax liability by an amount equal to 30% of the amount invested.
EIS capital gains disposal tax exemption: Broadly there is no capital gains tax (CGT) payable on disposal of shares after three years, or three years after commencement of trade, if later, provided the EIS initial income tax relief was given and not withdrawn on those shares.
EIS capital gains Tax deferral relief: The payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS qualifying company. The deferral can arise from the disposal of any kind of asset, but the EIS investment must be made within the period one year before or three years after the gain arose.
EIS Loss relief: If any individual’s investment in an EIS Company makes a capital loss, then loss relief is available (net of any EIS income tax relief). This loss can be offset against income tax of the same year or the preceding one or against capital gains of the same year or carried forward.
Inheritance Tax Exemption: If an investment in an EIS company has been held for at least two years before an investor’s death, the investment should, in most cases, obtain full relief from Inheritance Tax.
The above information, and any further provided by Keith Harte Bloodstock Ltd in relation to EIS, is only intended as a general guide on EIS. If you are thinking of investing in a Bloodstock Company with EIS status and are unsure of your tax position, or are subject to a tax jurisdiction other than the United Kingdom, then you should immediately contact a qualified professional advisor before any final investment decision.
An SEIS Investment Scheme
AN SEIS INVESTMENT SCHEME – slightly different to EIS where investors can claim 50% relief. See bleow for benefits for UK taxpayers;
50% Initial Income Tax Relief - claim back up to 50% relief against personal income tax on EIS investments to a maximum of £1m each per tax year. This allowance can be carried back to the previous tax year for offset against income tax. Shares must be held for a minimum of 3 years from the date they are issued. Actual net cash outlay 50p in the £1.
CGT Relief- No Capital Gains Tax payable on disposal of shares after three years provided the EIS initial income tax relief was given and not withdrawn on those shares. No Capital Gains Tax to pay.
Inheritance Tax - Shares in EIS qualifying companies will generally estate for the purposes of Inheritance Tax purposes after two years, potentially reducing IHT liability to nil. Potential 40 pence in the £1 saving.
50% CGT Reinvestment Relief- Potential exemption of 50% off an existing CGT bill.
Loss Relief- Maximum exposure of 27.5p in the £1 for a 45% tax payer.