registerme
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Post by registerme on Aug 5, 2019 8:18:13 GMT
I'm looking at an angel investment in a startup I'm (becoming increasingly) familiar with. It is EIS eligible (whatever the right term is), but as an investor do I actually have to do anything / claim anything to take advantage of its EIS status?
I understand I have to hold the investment for three years to be able to use the capital gains tax relief, but what happens, for example, if there's a trade sale prior to the end of the three year period?
Cheers,
RM
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hazellend
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Post by hazellend on Aug 5, 2019 8:24:11 GMT
I'm looking at an angel investment in a startup I'm (becoming increasingly) familiar with. It is EIS eligible (whatever the right term is), but as an investor do I actually have to do anything / claim anything to take advantage of its EIS status? I understand I have to hold the investment for three years to be able to use the capital gains tax relief, but what happens, for example, if there's a trade sale prior to the end of the three year period? Cheers, RM You claim the 30% tax relief in your self assessment tax return and will need the EIS number. If your money is returned within 3 years you will need to pay back the tax relief but usually you will have made a significant profit so it won’t matter. If the EIS goes bust (high risk) you can offset the invested amount (minus the initial tax relief) against taxable income .
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registerme
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Post by registerme on Aug 5, 2019 8:32:39 GMT
Thanks hazellend, what might be slightly unusual in my case is that I have almost no taxable income, so the EIS tax relief on that is of little to no value to me. Basically the upside protection I get from EIS is capital gains, but I don't benefit from the downside protection. |
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hazellend
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Post by hazellend on Aug 5, 2019 10:24:31 GMT
Thanks hazellend, what might be slightly unusual in my case is that I have almost no taxable income, so the EIS tax relief on that is of little to no value to me. Basically the upside protection I get from EIS is capital gains, but I don't benefit from the downside protection. Do you need the capital gains relief though? Everybody is already entitled to 12k per year cap gains tax free so EIS only helps if you have a lot more than this. Unless you have inside knowledge about this company you are giving up a huge part of the EIS return if you can’t claim the initial 30% Also, if you manage to exit the EIS within 3 years you don’t get any additional cap gain relief.
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bigfoot12
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Post by bigfoot12 on Aug 5, 2019 18:56:01 GMT
Thanks hazellend , what might be slightly unusual in my case is that I have almost no taxable income, so the EIS tax relief on that is of little to no value to me. Basically the upside protection I get from EIS is capital gains, but I don't benefit from the downside protection. Do you need the capital gains relief though? Everybody is already entitled to 12k per year cap gains tax free so EIS only helps if you have a lot more than this. Unless you have inside knowledge about this company you are giving up a huge part of the EIS return if you can’t claim the initial 30% Also, if you manage to exit the EIS within 3 years you don’t get any additional cap gain relief. I am not an expert, but I do have some painfully gained, but incomplete, experience. My suggestion is that you either get some expert advice, or don’t bother. If this is a fun punt accepting a 90%+ chance of loss (never mind sort of thing) then I suggest that you do a lot of research. Start with HMRC and then move on to Seedrs and SyndicateRoom as both of these have some good articles from lawyers and accountants. As hazellend says you get £12k per year. If your gain is larger than this and lists, or is bought by a listed company you could split your sale across multiple tax years (with the risk that the share price falls), the float or sale (for shares) isn't usually the exit but when you sell the shares. (The sale might be for cash and then it is forced on you.) If your investment is large or you already use your CGT allowance then get some proper advice as you may be able to roll existing capital gains into your new purchase, deferring them until you exit these. Your problem might be that often if you don’t claim any income tax relief you might not be eligible for the CGT relief. It is quite common for investors not to be able to use the EIS relief and so many startups have other classes of shares, such as convertible loan notes, or preference shares which you might find better. Startups are usually desperate for cash so you are in a strong position. I have been offered these for modest investments. It is very easy to lose EIS status and it might not be important to those making the key decisions. They will care about ER or something else. You might find the portion held by EIS investors is very small.
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registerme
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Post by registerme on Aug 6, 2019 8:03:16 GMT
Your problem might be that often if you don’t claim any income tax relief you might not be eligible for the CGT relief. Yes, that question had occurred to me too. I guess my stance is that I'd be investing regardless of EIS or not, but given that it exists (and the firm is eligible), it would seem sensible to try and benefit from it. I also take your point about other classes of shares and, yes, that's an option. I should get proper advice, I just hate paying for it  . Being able to do a little research ahead of time, and get pointers from people here and elsewhere, is handy.
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hazellend
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Post by hazellend on Aug 6, 2019 8:27:48 GMT
Your problem might be that often if you don’t claim any income tax relief you might not be eligible for the CGT relief. Yes, that question had occurred to me too. I guess my stance is that I'd be investing regardless of EIS or not, but given that it exists (and the firm is eligible), it would seem sensible to try and benefit from it. I also take your point about other classes of shares and, yes, that's an option. I should get proper advice, I just hate paying for it . Being able to do a little research ahead of time, and get pointers from people here and elsewhere, is handy. What is the business out of interest? Is it family/friend? You seem set on investing so I assume there is a very good reason
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registerme
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Post by registerme on Aug 6, 2019 9:14:28 GMT
It's "fintech with a difference" (ie they are actually making some money). Compared to the man on the Clapham Omnibus I have somewhat privileged access to one of London's tech hubs, and I met the CEO via that route. I've spent a couple of nights on the beer with him, and been through their business plans, accounts, product strategy etc in some depth.
Guaranteed to come home? Nope. Enough of a chance that I think it's worth a reasonable punt? Yup.
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Vero
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Post by Vero on Aug 8, 2019 1:03:50 GMT
Your problem might be that often if you don’t claim any income tax relief you might not be eligible for the CGT relief. Yes, that question had occurred to me too. I guess my stance is that I'd be investing regardless of EIS or not, but given that it exists (and the firm is eligible), it would seem sensible to try and benefit from it. I also take your point about other classes of shares and, yes, that's an option. I should get proper advice, I just hate paying for it . Being able to do a little research ahead of time, and get pointers from people here and elsewhere, is handy. registerme I think the salient point is that, even if you don't have any taxable income to claim the 30% relief against, you should still "register" the EIS investment in your SA tax return. That way you will then be eligible for :
- CGT deferral on something else, if disposing of that "something else" to use to buy the EIS shares with
- CGT disposal relief (exemption) on any profit when selling EIS shares, after holding for 3 years
- Inheritance tax relief, after EIS holding shares for 2 years
- Loss relief on any loss on the EIS shares (purchase price less any income tax relief)
The relevant tax year is determined by the date the share certificate is issued, usually the same date as the EIS form (can be claimed/registered in tax year of issue, or carried back to previous tax year).
SEEDRS have a great overview, and breakdown of this (and SEIS):
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. Being able to do a little research ahead of time, and get pointers from people here and elsewhere, is handy.
