Two popular investment incentives offering a number of tax breaks were due to expire in 2025. However, the government has announced that they will be extended. What’s the full story?
Shares in qualifying companies must be issued before a certain date, known as the sunset date, in order to claim tax relief under the enterprise investment scheme (EIS) or the venture capital trust (VCT). The sunset date was set at 6 April 2025 and the previous government planned to extend this by ten years. The current government has now issued a statement confirming that the planned extension will go ahead.
By addressing this point now, both businesses and investors have certainty over the availability of the generous tax reliefs that encourage the funding of smaller businesses. Both schemes afford investors 30% income tax relief and potential exemption from capital gains tax. However, the investments are generally considered to be high risk, so in the event that the company fails, tax relief is available on a loss made on an EIS investment; subject to adjusting for income tax relief given and not withdrawn.
However, the press release contains a peculiar statement: “The government recognises the risk that investment in early-stage companies carries, so investors are offered loss relief through the EIS as long as shares are held for at least two years.”
Under the current rules, there is no minimum holding period for loss relief to apply. This would be unfair for investors that invest in companies that fail early, and would seem to contradict the spirit of the EIS. It’s not clear whether this is a mistake or reference to a change the government is intending to announce at the Budget next month.
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