Investing own money in own new company - introduction
If an individual is starting in business and investing their own money in their own limited company they may be able to claim EIS CGT deferral relief. As it is their own limited company, it is unlikely that they will be able to claim EIS Income Tax relief because of their connection with the company - but this will be tested after the facts have been gathered.
EIS relief cannot be claimed if the main purpose, or one of the main purposes, is the avoidance of tax. In this context, claiming EIS reliefs is not considered to be the avoidance of tax.
Nor can EIS be claimed on new shares issued in a company if the subscriber already holds shares in the company, unless:
- the individual has made a 'risk finance investment' before 18 November 2015 (the date the Summer Finance Bill 2015 received Royal Assent), or
- the individual's shares in the company (excluding founder's shares) were a 'risk finance investment'.
A 'risk finance investment' is an investment under EIS, SEIS or Social Investment Tax Relief.
There is no minimum or maximum amount that can be deferred. And it doesn't matter whether or not the individual or trustee is connected with the EIS company.
Prior to the changes made by Finance Act 2015, a claim could not be made for both Enterprise Investment Scheme (EIS) CGT deferral relief and Entrepreneurs' Relief (ER) in respect of the same gain. The individual had to choose between claiming ER or EIS CGT deferral relief. If, however, ER was claimed, EIS CGT deferral relief could still be claimed on any gains in excess of the available lifetime limit.
For disposals on or after 3 December 2014, investors can benefit from both ER and the deferral of gains reinvested under EIS. This means that gains which are eligible for ER at the time of the original disposal, but which are instead deferred into investments qualifying for EIS, can benefit from ER when the gain is realised, for example when the shares are sold.
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