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Many businesses are currently feeling squeezed when it comes to lending commitments or trying to raise further finance. Lending criteria seem to be tighter and sums available to borrow have decreased considerably. If your company is a trading company and is one of the many experiencing these constraints, you may want to consider an alternative for raising finance.
One alternative is to offer Enterprise Investment Scheme ("EIS") shares. With EIS shares the tax reliefs offered to the investor can be very generous, up to 30% income tax relief and if the investor has recently made capital gains, they can reinvest that gain and delay paying the capital gains tax until they sell the EIS shares that they invested the gain in. As if that was not enough, EIS also offers significant reductions in payments of capital gains tax for any gain made on the EIS shares when they are finally disposed of.
There are a few points of caution to bear in mind:
(i) not all companies will qualify to offer EIS shares (you must be of a certain size and carrying on a qualifying trade); and
(ii) privately owned companies cannot publicly offer their shares for sale so you would need to plan carefully how you will attract investment.
As an investor in EIS qualifying shares, to be able to claim the tax reliefs you need to:
The rules that determine whether an investor is connected with a company so as to deny EIS relief are not straight forward, however, we have specialists in both our Tax and Corporate teams who can advise you further on what is meant by "connected" for these purposes.
If you think that EIS may be an option for your company and you would like to discuss it further, we would be happy to help.