Following the wave of changes to the Enterprise Investment Scheme (EIS) legislation over the last few years, no major EIS change is planned for the tax year 2013/2014 under the Finance Bill 2013. There is one exception to note on the general proposal to cap income tax losses: this cap will not apply to losses made on shares where EIS and SEIS income tax relief is obtained and retained.
There are, however, proposed changes to the Seed Enterprise Investment Scheme (SEIS).
• For shares issued on or after 6 April 2013, “off-the-shelf” companies incorporated by formation agents (and so initially controlled by another company) will not be disqualified from receiving SEIS investment as long as: (a) the company has not started, or prepared to start, trading; and (b) the corporate control only exists when the company has subscriber shares in issue. This relaxes the independence condition (i.e. that the SEIS company cannot be a wholly owned subsidiary).
• Capital gains realised in the 2013/2014 tax year which are reinvested in one or more SEIS companies could benefit from capital gains tax relief. Unlike the rule for the 2012/2013 tax year (where there was no restriction), the relief is restricted to 50% of the qualifying reinvested amount. This change does not affect the maximum amount (£100,000) that an individual can invest under SEIS in each tax year to qualify for 50% income tax relief.
While there are few changes to EIS and SEIS for the current tax year, the exclusion of EIS and SEIS from the general cap on income tax losses, the relaxation of the independence condition and the extension of capital gains relief are signs that the Government recognises the significance of these types of investments and wants to encourage them. It is hardly surprising when, as an HMRC representative reported to the EIS Association at its Spring Technical Seminar, there have already been around 2,000 applications for Advance Assurance under SEIS and around 3,000 under EIS so far in 2013.
We previously reported on the Government’s introduction of the “disqualifying arrangements” test, which has been viewed by some (particularly in the media and entertainment sectors) as an overcautious and unwanted obstacle, especially as it is still unclear how the test will work in practice. At a time when a boost to the country’s economy is much needed, the increased level of investment interest and activity reported by HMRC is notable. Perhaps the changes proposed indicate a sea-change in the Government’s attitude to these schemes.
Associate, Michael Simkins LLP
Note: the information above is not intended to constitute tax advice and is subject to change. If you are interested in finding out more, we can put you in touch with tax advisers who can provide up-to-date information.