Start-up backers encouraged to take up “generous” tax breaks

by Calum Fuller

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11 Jan 2013

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BACKERS of start-up businesses are being encouraged to take advantage of an obscure tax break scheme branded "ridiculously" generous by the government's enterprise advisor.

The Seed Enterprise Investment Scheme (SEIS) offers 50% income tax relief on investments of up to £100,000, while a capital gains tax holiday means tax breaks of up to 78% are available until 2014 on investments meeting the qualifying criteria. There is also loss relief available for failed ventures, allowing investors to write off more than 100% of money put into the enterprises.

The taxman is promoting the little-known scheme and specified investors can utilise a method known as ‘carrying back' to circumvent paying capital gains tax on investments in enterprises before April 2014, a year longer than expected.

Investor Dale Murray told the Telegraph the extra time for investors to access the tax holiday is necessary as it was only given royal assent in the summer.

She said: "Investors only had part of the current tax year to benefit. The [capital gains tax holiday] is a great way of kicking the scheme off.

"It's unbelievable – the government is effectively underwriting your investment. Even very enterprising countries like the US and Israel have nothing that compares with SEIS. This will mean more high-growth start-ups getting much-needed funding, which can only be a good thing. It's the world's most generous scheme for angel investors."

Tax advisors have urged clients to consider SEIS.

Jon Isaacs, partner at Jeffreys Henry LLP, previously said: "SEIS is an excellent opportunity for private investors to contribute in exciting young start-ups and at the same time reducing the risk by mitigating their tax liability by up to 78%, or up to 100.5% should the investment fail."

However, not everyone welcomed the scheme so enthusiastically. Lord Young, the government's enterprise advisor, branded the move as "ridiculously generous", while commentators suggested take-up of the scheme may be impeded by an investment limit of £150,000.

HMRC said there had been no extension to the scheme, but investors can access the capital gains tax relief until April 2014 under certain circumstances as the scheme allows SEIS shares to be treated as if they were acquired in the previous year.

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