UK venture capital market review should seek to simplify tax rules

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EIS relief is intended to encourage investment in start-up companies. Where certain conditions are met, income tax relief of 30% is available to individuals who invest in qualifying companies on the amount invested up to £1 million in a tax year . The limit is raised to £2 million for an investment in a “knowledge-intensive business”.

Gains on any increase in value of these shares are tax exempt provided the individual holds the shares for more than three years. Although offering attractive tax incentives for investment in start-ups, the conditions are complex.

For small businesses, SEIS may be available. The qualification requirements are very closely based on the EIS. Although the maximum amount of investment eligible for SEIS relief is quite low at just £100,000 per annum, in certain circumstances eligible investors will be able to claim income tax relief of 50% of the cost of investing. purchase of company shares. Qualifying SEIS investors will also be exempt from capital gains tax on SEIS shares and benefit from a 50% tax exemption on capital gains reinvested in SEIS shares.

Beyond taxation, the Treasury survey also focuses on the current state of the venture capital industry in the UK, the operation and effectiveness of the various regulatory regimes governing the industry and the effectiveness of current venture capital policies in achieving broader government goals, such as ‘leveling-up’, the goal for the UK to be a science and technology ‘superpower’ and achieving the goal net zero emissions.The paper looks in particular for evidence of the effectiveness of the UK scheme compared to the international scale.

The consultation is open until June 7, 2022.

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