Which investment relief is for you: IR,ER, SEIS or EIS

If you are a high rate tax-payer you might be looking for a new way your accountant can reduce your income tax bill. One way of doing this is through investing in a business, and there are many tax-relief schemes out there to make this activity attractive. Here we explain the different investment relief schemes available so you can decide which one is the best for you to access with the help of your tax saving accountants who should also be qualified accountants.

If you are based in London, finding the right accountant in London can add a huge amount of value to the decisions you make.

Following are the different investment relief schemes available:

Entrepreneur’s Relief (ER)

Entrepreneur’s Relief (ER) gives entrepreneurs a low CGT rate of 10% on the sale of their business, as long as the business has been in their ownership for a year and they own at least 5% of the shares and voting rights. Qualification is not solely for owners/directors but also for employees as well. With ER it’s only necessary to have held the shares for a minimum of 1 year and there is a £10 million lifetime limit for this type of investment relief, as your accountant will advise you.

A tax saving accountant or a good accountant in London will be qualified to advise you on how to take advantage of the ER if you think this is the most appropriate tax-relief option for your situation.

Investor’s Relief (IR)

The aim of Investor’s Relief (IR) is to attract investors to put their money into unlisted trading companies, it is also known as becoming a ‘business angel’. In this role, as your tax saving accountant will tell you, investors cannot be an employee of the company and need to be an independent actor.

The benefits of IR are that you will be given the 10% CGT rate when you sell any shares in the company (as long as you have held them for three years) and this is restricted to a £10 million lifetime limit. It is likely that your accountant will recommend this form of tax-relief to you if you have already used up your £10 million ER allowance, or you don’t want to go down the ER route.

It’s important that you get the advice of an experienced accountant in London to make sure that this is the correct investment relief route for you. A personal tax accountant can also make sure they look at your personal situation to advise you of the best possible scheme applicable to you.

Enterprise Investment Scheme (EIS)

If you are interested in giving small companies a healthy boost of cash, a tax saving accountant may advise you to take advantage of the Enterprise Investment Scheme (EIS). This offers investors’ income-tax relief in return for taking a chance on higher-risk companies that are in the earlier stages of development and provides relief from CGT on selling shares that have been owned for three years.

There are some rules to adhere to with EIS, which your tax saving accountant or a good accountant in London will advise you on, these include the conditions that the investor must not be ‘connected’ with the company – so must not already be a shareholder, a paid employee or an unpaid director (i.e. a business angel).

For this form of investment relief you will need the assistance of your accountant, or specifically, tax saving accountants who will be able to get the necessary approval from HMRC that the company you wish to invest in meets the EIS criteria. There will be plenty of experienced accountants in London who can advise on EIS.

Seed Enterprise Investment Scheme (SEIS)

Your tax saving accountant may have mentioned the Seed Enterprise Investment Scheme (Seis). This aims to attract investors to small businesses and start-ups that are in their early stages and need some equity to get them off their feet. The attraction comes in the form of a generous 50% income-tax relief. Investments can’t exceed £100,000 and, like with EIS, you can’t have a previous connection or special interest in the company you are investing in (speak to your accountant in London for the fine print).

Another bonus is that any gains you make on selling shares from the company (as long as you have held them for three years) are CGT free. If the SEIS sounds appealing, get your hands on a good accountant in London to put the wheels in motion.

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