17
INHERITANCE TAX RELIEF
Business Property Relief (BPR) applies
after an initial holding period of two
years and means that qualifying shares
fall outside the estate for IHT purposes.
Shares in an unquoted company qualify
for 100% BPR, as long as the assets are
held at death. (Full details are included
in the HMRC guide here:
)
Business property relief can be
claimed on the following:
A business or an interest in a business
(such as a partner in a partnership)
Unquoted shares – including shares
traded in the Unlisted Securities Market
(USM) or the Alternative Investment
Market (AIM)
A holding of shares or securities owned
by the transferor, which are fully listed on a
recognised Stock Exchange, which
themselves or with other listed shares or
securities give control of a company
Land, buildings, plant or machinery
owned by a partner or controlling
shareholder and used wholly or mainly in
the business of the partnership or company
immediately before the transfer (this applies
only if the partnership interest or
shareholding would itself, if it were
transferred, qualify for business relief)
Any land, or buildings, machinery or
plant which was used wholly or mainly for
the purpose of a business carried on by the
transferor and was settled property in
which the transferor was beneficially
entitled to an interest in possession and
used in the transferor’s business
TAX RELIEFS FOR NON-DOMICILED
INVESTORS
Resident non-domiciled investors can take
advantage of Business Investment Relief
(BIR) to bring money into the UK tax free
if that money is then invested into a BIR
qualifying company within 45 days. (Full
details can be found in the HMRC guide
here:
.)
This means there is a double benefit of a
tax-free remittance into the UK plus the
tax reliefs available via EIS investing and
often this money will have been untaxed
offshore income or gains, so continuing to
shelter this wealth from tax makes sense.
This is designed to encourage non-domiciled
individuals to invest in UK trading companies
(note that such companies may also qualify
for tier 1 Visa Investment purposes).
On exit from the EIS investment, any
profits can be retained onshore, but the
principal (less any losses) must be returned
offshore within 45 days of the exit.
The conditions for Business Investment
Relief are slightly tighter than for EIS:
Investors must subscribe in cash for new
shares (although BIR is also available for
loans to qualifying companies)
The investment must be in a private
limited company or an AIM listed company
It must be a trading company (but
companies which invest in eligible trading
companies may qualify)
Property rental companies may qualify
There are restrictions on receiving
‘benefits’ (if provided on non-commercial
terms for BIR)
There are penalties if the qualifying
conditions are breached. Usually, the asset
must be disposed and the proceeds sent
offshore
BIR has its own advance assurance
procedure
Not only is this a great benefit for non-
domiciled investors, but it is fantastic for the
UK economy as well, as it is bringing in new
money from overseas that otherwise would
not have been invested here. Several EIS
managers are now developing BIR products.
Full detail of the available tax benefits can
be found in the HMRC manual:
PRINCIPAL RISKS WITH EIS
Although the EIS is designed to mitigate
some of the main risks associated with
investing in small companies, there are a
number of considerations to be aware of
which are particular to EIS investments.
FINANCIAL SERVICES COMPENSATION
SCHEME (FSCS) STATUS
Whether or not an EIS investment is covered
by the FSCS depends upon the structure
of the investment. Single company EIS
investments and investments that are
not held within a traditional fund (where
investors’ money is pooled and invested
collectively) would not be considered
to be retail investment products and
therefore would not be covered by the
FSCS. Note, that this means that a managed
portfolio service in
not
covered by FSCS.
However, many EIS funds are now
structured so that they are appropriate for
Ordinary Retail Investors, and these will
be covered by the FSCS. In these cases,
if the fund manager was unable to meet
its liabilities and the clients lost money
as a result of this, then eligible claimants
will be covered for up to £50,000. In
addition, un-invested cash will be held
in a segregated client account that also
benefits from FSCS cover. The normal
£85,000 per person, per institution rule
applies (and therefore it’s always best
to check which bank holds the cash).
LOSS OF EIS STATUS
If firms make changes to their structure
or activities that result in the loss of their
EIS status, this will have a dramatic impact
on investors’ returns. Investors in single
companies must assure themselves that
the company management are cognisant
of this and have their investors’ interests in
mind when making key business decisions.
“Retirement and Inheritance Tax planning and the wish to shelter capital gains made on other
transactions are increasingly important drivers for EIS investment”
SarahWadham, EISA
RISK
SMALL COMPANY
INVESTING
SPECIFIC TO EIS
INVESTING
Company Failure
Lack of Influence
Modest Performance
Inexperienced Management
Illiquidity
FSCS Status
Loss of EIS Status
Deal Flow and Cash Drag
Scams and Frauds
