Last month the Finance Bill was given Royal Assent providing a special relief called the Seed Enterprise Investment Scheme (SEIS), which is designed to encourage investment in start-ups.
The SEIS offers income tax relief at 50 percent to taxpayers who subscribe for new ordinary non-redeemable shares in cash in qualifying companies. And relief will be given at 50 percent whether or not the individual is a higher rate taxpayer.
Each investor has an annual limit of £100,000. Any unused relief can also be carried back to the previous tax year. No tax relief is available to employees (or an associate of an employee) of the invested company, although for this purpose directors are not regarded as employees.
The relief is not available to individuals who have a more than 30 percent interest in the company and the relief cannot be claimed until the company has spent at least 70 percent of the money raised by the share issue on its business activities and issued the necessary compliance certificate.
Gains realised by the individual on the disposal of qualifying SEIS shares will be exempt from Capital Gains Tax (CGT) provided this takes place three or more years after the shares are issued, which means that an investor can potentially recoup 78 percent tax, if they reinvest their 50 percent tax rebate.
Given the potential benefits to investors, some experts are now comparing the investment with residential property, which has been seen as a safe bet until fairly recently.
Under the scheme, businesses can raise up to £150,000 as long as they have 25 or fewer employees, assets of up to £200,000 and are no more than two years old.
Accountant, Jon Stocker, specialises in offering advice, support and guidance on matters involving personal tax planning, business decision-making and business start-ups.