Government’s Tax Efficient Investment Schemes Boost UK Crowdfunding

The government has introduced two tax efficient investment schemes to encourage individuals to invest in small companies. Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are government initiatives that offer some of the most interesting tax breaks in the UK which influenced the success of the UK’s crowdfunding industry.

Enterprise Investment Scheme (EIS) was introduced in 1994. At the moment, EIS offers tax breaks to investors who buy shares in small companies. The benefits include:

• Income tax relief of 30%.
• You will not be paying the capital gains tax on the profit that you make from your EIS investment.
• You can counter balance that loss against income tax if ever you make a loss on your investment.

To be qualified for these tax reliefs, you are required to hold the shares for a minimum of three years before you sell them.

While the Seed Enterprise Investment Scheme (SEIS) was introduced by the government in 2012, it has the same characteristics as the EIS but it is specially created for investing in even smaller businesses. SEIS offers a more generous tax breaks:

• Income tax relief is 50%.
• There is no capital gains tax for the profit you gain from your investment, no inheritance tax, and there is a loss relief that you can claim.
• You can claim a capital gains reinvestment relief. If you have recently paid capital gains tax on other investments, you are able to claim up to 50 percent of the tax paid if you reinvest that fund into SEIS.

With these two investment schemes, UK crowdfunding surely has a long way to go. Investors have become more interested not only in supporting the SMEs they believe in but also the significant tax breaks available.