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EIS ADVICE SOUGHT

Unique Property Bulletin

Enterprise Investment Scheme

Public Share Issue Treatise Overview

 

IMPORTANT: This is NOT an invitation to subscribe for shares. This page is to provide background for industry professionals to review in relation to proposal we are working through. It is NOT a Unique Property Syndicate.

This page IS a review of existing legislation and a pen-drawing of how we may grow the Unique Property Bulletin with an asset backed public share issue (plc). The text below is ONLY for industry professionals who are also readers of the Unique Property Bulletin, and as like-minded individuals may be able to offer gentle guidance on whether spending several thousand pounds in solicitors and accountants fees for a public limited company (plc) share issue via the tax efficient Enterprise Investment Scheme (EIS) is an effective way forward.

 EIS PLC Debate 2

An Example Of An Asset Backed Element: Unique Internet Business Building HQ

Proposed Business Purchase & Sale After Tax Efficient 3 Years

Examples: Here are the three main scenarios showing how EIS tax relief works. To make the arithmetic clear we assume the investment tranches are at £10,000 in each case (or can be multiples thereof) for those in the 45% tax bracket.

Case 1: The company does well and doubles its value (during the required three years)

Investment = £10,000

Income Tax relief = £3,000 (as a reduction in your income tax bill)

Capital Gains Tax = £Zero

Sale of Shares £20,000. Your gain = £13,000 (£10,000 tax exempt profit from the sale plus £3,000 income tax relief)

Case 2: The company value stays the same

Investment = £10,000

Income Tax relief = £3,000 (as a reduction in your income tax bill)

Sale of Shares £10,000. Your gain = £3,000 (from the income tax relief)

Case 3: The company closes and the shares are worth nothing (thought in our case a bricks and mortar asset would still exist)*

Investment = £10,000

Income Tax relief = £3,000 (as a reduction in your income tax bill)

At risk capital = £7,000

Loss relief on at risk capital @ 45% = £3,150

The actual loss = £3,850 (£10,000 – [£3,000 + £3,150]). Bricks and mortar asset backed 100% equity driven business would mitigate this.

*The main reason for asking appropriately qualified and experienced Unique Property Bulletin readers about this Government Enterprise Investment Scheme is primarily to ask if:-

1. A share issue is put together for an internet company, is this a “qualifying company” in terms of the Enterprise Investment Scheme (EIS)?

2. If the internet company is 100% equity driven with no debt at any point during it’s 3 years within the EIS scheme, and owns it’s own headquarters, does this “asset backing” of the company in bricks and mortar preclude or compromise the EIS certification for the relevant range of tax reliefs?

3. If, on completion of the 3 year EIS scheme the investors take the exit route of a sale (or listing on the Alternative Investment Market stock exchange) would profits from the Internet Business be compromised by any uplift in the value of the bricks and mortar Internet HQ? If the Share Issue Prospectus and follow through business protocol was a £400,000 plc with £300,000 going to purchase of the Internet Company HQ, and £100,000 towards the Internet Business operating account, would the fact that this is a prudent asset backed way of establishing a business compromise any EIS tax reliefs. In essence, would the safety mechanism of a reduction to near zero loss by asset backing mean the EIS essence is still allowed?

 EIS PLC Debate 3

An Example Of An Asset Backed Element: Unique Internet Business Building HQ

Proposed Business Purchase & Sale After Tax Efficient 3 Years

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Unique Property Bulletin

Enterprise Investment Scheme

Public Share Issue Consideration Further Detail

To our great surprise, we received an 11,243 “spike” of extra website visitors from the Daily Telegraph….

Unique Property Bulletin Newspaper Feature

Hopefully, amongst these new Unique Property Bulletin readers are some industry professionals who may be able to help our group of internet companies with some very general guidance on whether our spending several thousand pounds progressing a public share issue in terms of the EIS scheme is an effective way to ensure the future of the various websites?

Please can appropriately qualified/experienced Unique Property Bulletin readers with knowledge of how the HMRC tax efficient Enterprise Investment Schemes work consider getting in touch with us:-

Unique Property Bulletin Contact Page: Click Here

Currently the Unique Property Bulletin is run as a not-for-profit enterprise. There are several reasons for this to do with depth of content and ethos of the volunteers surrounding the website.

However, the main site, and especially our growing sister websites such as:-

 

Lighthouses For Sale Or Rent Website

 

Grand Designs For Sale Website

 

Real Dragons’ Den Website

 

…are showing significant potential for growth and job creation. There are approximately 9 more websites on the “starting blocks”. The existing volunteers are reaching the stage where all spare time is taken up, and members of staff will soon be needed.

Whilst researching an article on Unique Property Syndicates, we came across the Enterprise Investment Scheme which appears to be a very tax efficient method of growing business. The tax reliefs only apply to certain categories of business, but with this are exceptions such as property business that are excluded.

Our interest is whether a new Unique Internet Business which, as part of its start-up needs purchases a suitable office property to work from and retains that, mortgage free, thereby providing prudent asset backing for the plc, would be an allowable EIS tax efficient business? Garden Office Scurdie Ness

An Example Of An Asset Backed Element: Unique Internet Business Building HQ

Proposed Business Purchase & Sale After Tax Efficient 3 Years

Any general advice or guidance/direction to good quality EIS legal/accountancy/share issue professionals would be greatly appreciated.

Please feel free to make an initial contact to ourselves via:-

Unique Property Bulletin Contact Page

Many thanks and best regards,

 

The Unique Property Team

 

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EIS PAGE REFERENCE OVERVIEW SOURCE:

http://www.crowdcube.com/pg/eis-tax-relief-for-investors-44

Enterprise Investment Scheme (EIS) Overview

The Enterprise Investment Scheme is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares in those companies that qualify. For the investor, it’s a tax efficient way to invest in small companies – up to £1,000,000 per person per year in qualifying companies.

What makes it even more attractive is the ‘carry back’ facility where investments can be applied to the preceding tax year.

What tax reliefs are available

1. Income Tax Relief

There is no minimum investment through EIS in any one company in any one tax year. Tax relief of 30% can be claimed on investments (up to £1,000,000 in one tax year) giving a maximum tax reduction in any one year of £150,000, provided you have sufficient Income Tax liability to cover it.

EIS allowances are allocated individually; therefore a married couple could invest up to £2 million each tax year and be eligible for Income tax relief. The shares must be held for at least three years from the date of issue or the tax relief will be withdrawn.

People connected with the company are not eligible for Income Tax Relief on their shares.

2. Capital Gains Tax exemption (CGT)

Any gain is CGT free if the shares are held for at least three years and the income tax relief was claimed on them. Shares can be held for much longer and therefore potentially enable the investor to be accrue their CGT exemption over a long period of time which can be a great attraction.

3. Loss relief

If shares are disposed of at a loss, the investor can elect that the amount of the loss, less Income Tax relief given, can be set against income of the year in which they were disposed or, on income of the previous year instead of being set of against any capital gains.

4. Capital Gains Tax deferral relief

Payment of CGT can be deferred when the gain is invested in shares of an EIS qualifying company. The gain can be made from the disposal of any kind of asset but the Investment must be made one year before or three years after the gain arose – connection to company does not matter. Unconnected investors are eligible for relief from both Income tax and CGT referral relief.

Carry Back

There is a ‘carry back’ facility which allows the all or part of the cost of shares acquired in one tax year, to be treated as though those shares had been acquired in the preceding tax year. Relief is then given against the Income Tax liability of that preceding year rather than against the tax year in which those shares were acquired. This is subject to the overriding limit for relief for each year.

Restrictions

 

Connection to the Company

Should the investor be connected to the company, they are not eligible for Income Tax Relief. Connections are defined through financial interest or employment.

Connection by financial interest

An individual is connected with the company if they control the company or hold more than 30% of the share capital or voting rights. These conditions apply for up to 2 years before and 3 years after the share issue. If during this time, the individual becomes connected, then the relief will be withdrawn. All relatives except brothers and sisters are included within these restrictions.

Connection by employment

Partners, directors and employees of the company are all connected with it and therefore not eligible, as are associates. Associates are business partners, trustees and relatives. Again, these conditions apply for up to 2 years before and 3 years after the share issue.

The only exceptions are Business Angels – where the connection is as a director who receives no remuneration from the company.

Claiming your tax relief

The investor can only claim relief once the company sends through an EIS3 form. Claims are made through the Self-Assessment tax return for the tax year in which the shares were issued.

Claims can be made up to five years after the investment after the first 31 January following tax year in which investment was made.

Tax relief that is reduced or withdrawn

Tax relief will be withdrawn if you become connected to the company or if the company loses its qualifying status.

The relief will be either reduced or withdrawn if the Shares are disposed of or if the investor receives “value” from the company such as a loan or an asset below market value.

Examples

These are given at the top of this webpage.

PLEASE NOTE:

The availability of any tax relief, including EIS and SEIS, depends on the individual circumstances of each investor and of the company concerned, and may be subject to change in the future. If you are in any doubt about the availability of any tax reliefs, or the tax treatment of your investment, you should obtain independent tax advice before proceeding with your investment.