50% tax rate, Budget stuff, Business Services, Business Tax, Personal tax, Tax Planning

Christmas cheer George Osborne style brings tax planning opportunities

By RJP LLP

It’s almost Christmas and the end of another busy year. It’s one many of us will be glad has passed, with business conditions continuing to be difficult due to a lack of available finance and uncertainty over the Euro and Europe affecting demand.

So what have we got to look forward to in 2012 by way of tax breaks and opportunities. Here are our picks of what was announced in the November Autumn Statement. As is becoming customary with this government, the draft legislation has already been issued, which means the changes will go ahead as suggested.

SEIS – glad tidings for entrepreneurs?

SEIS or the Seed Enterprise Investment Scheme is an initiative designed to encourage investment in small companies with 25 or fewer employees and assets of up to £200,000. The scheme works by offering tax relief to investors who subscribe for shares and have a stake of less than 30% in the company. Directors who invest in their own companies are also eligible for the tax relief. To qualify, companies must be “genuine new ventures” or start-ups at the point of getting up and running – the investment must be made within 2 years of incorporation.

A maximum of 50% income tax relief is available for individuals who invest an annual amount of up to £100,000 in shares, which must be issued on or after 6^th April 2012. The scheme works in a similar way to the EIS scheme whereby any unused allowance can be carried back to the previous year and the maximum investment allowed in any one company in total is £150,000.

Investors backing SEIS enterprises will also benefit from zero capital gains tax (CGT) on gains arising from qualifying SEIS investments and as a further incentive there will be an exemption from CGT on gains realised from disposals of assets in 2012/13 where the gains are reinvested into a SEIS company by subscribing for shares in the same year. So for instance if you sell an asset and make a gain of £75,000 during 2012-13 and then invest this into a SEIS, your CGT liability will be reduced to nil. Overall then this represents a good potential investment opportunity for higher rate taxpayers looking for planning opportunities.

In total, depending on your circumstances, investing through SEIS could therefore represent tax relief of up to 78% for investors, which is definitely not to be sniffed at! Equally it is a great vehicle to encourage financial support for entrepreneurs looking to make their bright ideas a reality.

Aside from SEIS there were new enhancements to the existing EIS and VCT schemes announced in the Autumn Statement. The most important is perhaps the relaxation to the rules about loan stock meaning that an individual could be deemed to be connected with a company even if they did not have a 30% shareholding EIS for tax relief purposes. Additionally, the annual limit of £1 million investment in a VCT has been lifted, giving both companies and investors greater scope.

All in all then, although the 50% tax rate looks like it is here to stay for the foreseeable future at least, George Osborne has looked for opportunities to encourage small and medium- sized enterprises and those wishing to invest in them. So maybe next year will bring further initiatives to boost the economy in this way? Let’s hope so.

If you are interested in either investing through SEIS or understanding how to attract investment to a business venture using this initiative, please contact either Lesley Stalker or Paul Webb.

On behalf of all who is involved with TaxTalk at RJP, we wish you a very happy Christmas and New Year and the very best for 2012.

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