Post by james123 on Jul 16, 2017 18:12:48 GMT
My brother has just started a new company selling IT services. It has the potential to be a great business as he has a lot of skills in this area. However, he doesn't have the capital needed at this moment to fund all of the initial setup required with advertising etc.
So talking this through, I had an idea, but I wasn't sure if it was dodgy. So I would welcome a second opinion.
The idea is based on the SEIS scheme which I believe is still in operation and open for new companies. I know that the original end date was April this year but I couldn't see any information confirming that the scheme date had been extended.
So, assuming it is still open, I was thinking of the following;
Lets assume I invested £100,000 in return for a 30% stake in the new business. My brother's company would use these funds to get an office, hire one member of staff and for a marketing budget.
I would then get 50% tax relief. I tend to manage my own dividends to be on the threshold of the higher rate tax bracket. However, I was thinking I could increase my dividend in order to incur additional tax charge of £50,000. Can I then use the tax relief from the SEIS investment to offset my personal tax on these dividends? If yes, this would be great as I wouldn't need to pay NI on the extra dividend which I know couldn't be recovered as tax relief.
Next I realise I would need to hold the shares in my brother's company for at least 3 years. And if the company doesn't do well realistically I would have to hold them for much longer. But what happens if my brother 3 years down the line is doing well and wants to buy back the shares before he starts paying dividends.
Could he use pre-tax profits from his company to buy back my shares? Or would he need to purchase the shares from his own personal income?
If he could use the company's funds to buy back my shares, lets say he buys it for £100,000. In that instance I would in effect have £50,000 more than I would otherwise have had.
Taking this to the next stage, what would happen if I started a new company in a couple of years time, and he then decided he wanted to invest in my new company. Assuming the company was SEIS qualifying, could he invest in my business? So it would end up looking like a reciprocal arrangement, giving him similar tax advantages, although of course this wouldn't be the main objective.
Would be very interested to hear other people's view on if this sounds dodgy or reasonable?
So talking this through, I had an idea, but I wasn't sure if it was dodgy. So I would welcome a second opinion.
The idea is based on the SEIS scheme which I believe is still in operation and open for new companies. I know that the original end date was April this year but I couldn't see any information confirming that the scheme date had been extended.
So, assuming it is still open, I was thinking of the following;
Lets assume I invested £100,000 in return for a 30% stake in the new business. My brother's company would use these funds to get an office, hire one member of staff and for a marketing budget.
I would then get 50% tax relief. I tend to manage my own dividends to be on the threshold of the higher rate tax bracket. However, I was thinking I could increase my dividend in order to incur additional tax charge of £50,000. Can I then use the tax relief from the SEIS investment to offset my personal tax on these dividends? If yes, this would be great as I wouldn't need to pay NI on the extra dividend which I know couldn't be recovered as tax relief.
Next I realise I would need to hold the shares in my brother's company for at least 3 years. And if the company doesn't do well realistically I would have to hold them for much longer. But what happens if my brother 3 years down the line is doing well and wants to buy back the shares before he starts paying dividends.
Could he use pre-tax profits from his company to buy back my shares? Or would he need to purchase the shares from his own personal income?
If he could use the company's funds to buy back my shares, lets say he buys it for £100,000. In that instance I would in effect have £50,000 more than I would otherwise have had.
Taking this to the next stage, what would happen if I started a new company in a couple of years time, and he then decided he wanted to invest in my new company. Assuming the company was SEIS qualifying, could he invest in my business? So it would end up looking like a reciprocal arrangement, giving him similar tax advantages, although of course this wouldn't be the main objective.
Would be very interested to hear other people's view on if this sounds dodgy or reasonable?
