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Example 1 Susan is a lawyer paying taxes at the top rate and invests 130,000 via SEIS during 2012/13 Susan invests 50,000 via SEIS during 2013/14 As Susan has not used 50,000 of the 100,000 limit in 2013/14, she can carry back the surplus to the previous year. Therefore, she may obtain full income tax relief for both years. This means she will get a tax account deduction of up to 90,000 over the two years, being 50% x (130,000 + 50,000)
the maximum amount that each company can attract in investment qualifying for SEIS is 150,000 in total the company must not have net assets of more than 200,000 before any SEIS investment for 2012/13 only an individual who makes a capital gain on another asset and uses the amount of the gain in making a SEIS investment will not pay tax on that gain subject to certain conditions However, a gain in 2013/14 can also be carried back to 2012/13
Example 2 Tim is a banker and decides to cash in his deferred bonus shares and sells them for 180,000 in May 2012, making a profit (or gain) of 80,000. Providing Tim makes qualifying investments of at least 80,000 in SEIS shares in the remainder of 2012/13 and all other conditions are met, the 80,000 gain will be completely free of CGT. Note that Tim does not need to invest the proceeds of 180,000 only the gain. Tim could also decide to keep the shares and sell them before 5 April 2014 in order to achieve a gain closer to 100,000 and maximise the CGT exemption through SEIS relief by claiming carry back relief. CGT partial exemption may still be available even if the gain is not invested in full, as per the example below Example 3 Tim sells his shares for 180,000 in May 2012, making a profit of 80,000. Tim makes qualifying investments of 40,000 in SEIS shares in the remainder of 2012/13 and all other conditions are met. Therefore, his exemption is restricted to 40,000 so 40,000 of his gain remains subject to CGT. anti-avoidance legislation is also in place to prevent exploitation for tax avoidance purposes.
The shareholder cannot receive any value from the company during the three-year qualifying period. However, this does not include ordinary commercial payments such as dividends or reimbursements of expenses, if the investor is a director.
spent within three years of the date of issue of the shares. The anti-avoidance requirement is that there must be no pre-arranged exit for the investor involving the sale of the shares.
Example 4
Stephen is a solicitor and invests 80,000 under SEIS in 2012/13. Potentially his tax relief is 50% of the investment which is 40,000. His tax liability for the year is 65,000 and therefore his tax liability will be reduced to 25,000. Jonathan is an entrepreneur and is planning to invest 80,000 under SEIS in 2013/14. His tax liability in 2012/13 is 30,000 and his forecast tax liability in 2013-14 is 50,000. Jonathan can make a claim to carry back the unused relief of 30,000 to the preceding tax year 2012/13.
Example 5 Kasra is a film and TV producer who invested 75,000 in SEIS shares in 2013/14 and received 37,500 income tax relief. If the SEIS company, for one reason or another, ends up not returning any value to the shareholders then Kasra can claim a capital loss of 37,500 which would attract income tax relief at his prevailing rate in the year he is able to offset this loss. A carry back of this loss would be possible to 2012/13 in order to get immediate relief.
Example 6 David is a dentist and sold his rental investment property 2012/13 resulting in a gain of 40,000. He invested 40,000 in SEIS in 2012/13 and as a result he receives CGT exemption and pays no tax on the gain. If David sold the property after 6th April 2013 (i.e. in 2013/14) he is now able to claim the gain in 2012/13 and get CGT exemption on this gain.
This gives a lot of potential for SEIS investors to carry back 2013/14 CGT gains on shares or second properties to maximise this one off situation. If you have assets with unrealised gains you should get in touch with us to see how you can benefit.
Example 7 Rolfe is a hedge fund manager with annual income tax bills in excess of 100,000 each year. He disposes of deferred performance related shares resulting in a gain after allowances and reliefs of 150,000. Rolfe invests 200,000 in SEIS shares in 2013/14, carrying back 100,000 to 2012/13. He also carries back 100,000 of the gain on the sold shares to 2012/13 and sets this off against the SEIS 100,000 investment. He therefore would only pay CGT on 50,000 gain and also potentially claim ER as well to reduce the rate of tax from 28% to 10%. This would save Rolfe a maximum potential of 28% CGT on the sold shares of 28,000 and 50,000 income tax on SEIS shares, a total of 78,000 in 2012/13. He will also receive 50,000 income tax relief in 2013/14. The CGT and income tax reliefs are able to be carried back to the prior year in this one off circumstance.
If potential SEIS investors intend on settling any property into Trusts at some point in the future then there could be tax planning opportunities to exempt CGT if planned correctly in 2013/14. There are also opportunities for business owners to expand down their industrys supply chain horizontally or vertically and obtain SEIS relief on the set up costs.
This article is intended to inform rather than advise and is based on legislation and practice at the time. Circumstances change and do not apply uniformly in all situations. We accept no responsibility for any financial loss incurred as a result of you reading this article whether by action or inaction.
SEIS Company Ideas: Childcare/babycare IT support and repairs Web design et al Cleaning Co Guitar manufacturing company requires financing newco, sales already 10k+/month and needs more financing to capitalise, may become 1-2m turnover in 2-3 years Product design can bring a clients proposals for consideration Repairs and maintenance already running 1