When you invest in UK startups, you not only get attractive profit, but the government also offers incentives in the form of tax relief to private investors.
The government understands the risk of investing in startups. At the same time, it acknowledges the importance of these new and inventive businesses crucial for the country’s economic growth. Therefore, the government offers incentives to encourage investors and offers assurance. These steps also help entrepreneurs kick-start their new business activities.
If you want to learn more about the tax reliefs you can get when investing in UK startups, our tax specialists have discussed each relief in this blog.
Enterprise Investment Scheme (EIS)
Enterprise Investment Scheme (EIS) is one of the most attractive tax reliefs for individual investors.
If you are investing in a qualifying startup (assets under £30M), you can claim up to 30% of the investment through income tax relief. Along with this tax relief, the Enterprise Investment Scheme also exempts you from paying the Capital Gains Tax if your shares increase in value.
Enterprise Management Incentives
Enterprise Management Incentives (EMIs) are suitable for cash-strapped startups that need to hire talented staff. This scheme allows a startup to offer fixed-price share options to attract and retain the talent they want. EMIs exempt the staff from paying Income Tax and National Insurance on the shares they buy. This creates a win-win situation for investors and entrepreneurs.
Some industries like property development and banking can’t use this scheme. Both EMIs and EIS are only applicable to startups having assets under £30 million.
Seed Enterprise Investment Scheme
The Seed Enterprise Investment Scheme (SEIS) is similar to EIS but is only limited to less mature startups. Startups less than two years old with less than £2M in assets qualify for this scheme.
Similar to EIS, individuals who invest in a qualifying startup will get income tax relief on their investment. But with this scheme, you get up to 30% of relief. You don’t have to pay the Capital Gains Tax on the growth of your shares, and the government also offers a loss relief if the startup fails.
Social Investment Tax Relief
Only community interest companies or charity startups qualify for Social Investment Tax Relief (SITR). Those who invest in these startups can get up to 30% tax relief on their purchases. There are some more conditions for startups to qualify for SITR, such as having fewer than 250 employees and less than £15M in assets. And the total amount they can raise under this scheme is £1.5 million.
If you’re thinking of investing in a startup to benefit from tax relief, our tax consultants can help you. At IBISS and CO, we have the leading tax specialists and advisors in London and Walsall. Our team can help you with all matters related to tax and accounting. Contact us to get started.