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Private Equity Taxation Planning Advantages

Taxation Planning Advantages

Traditum has a unique way of working. As a client you will be able to access the income and capital gains tax mitigating investments in our portfolio. We use government incentives and enterprise investment schemes to promote entrepreneurialism and innovation.

These investments qualify for Business Relief. They are typically outside the estate of our high-net-worth family clients – subject to your personal taxation circumstances.

Traditum clients benefit from long-term, generational, tax-planning across investment structures that provide high-net-worth families with a diversified, tax-efficient portfolio.

The Enterprise Investment Scheme is one of several schemes recognised by HMRC which are designed to encourage investment in small and medium-sized growth companies in the UK by offering tax reliefs to investors who buy and hold, new shares in those companies.

The rules that govern which companies qualify for EIS status are both complex and wide-ranging and contain limits on the assets of the company, number of employees, funds raised, the uses that those funds are put to, and so on, but in very general terms companies must satisfy the following criteria.

  • They must be UK-based.
  • They must carry out a qualifying trade.
  • They must not be listed on a recognised stock exchange (although AIM listings are allowable).
  • Their first commercial sale must have been less than seven years ago.

Furthermore, for individual investors to qualify for tax reliefs, the company must continue to satisfy the relevant conditions throughout a period of three years from the date of investment.

If a qualifying individual invests in an EIS company, then they may be able to claim certain tax reliefs.

Income Tax

Investors can claim up to 30% income tax relief on investments of up to £1,000,000 per tax year which equates to a maximum of £300,000 relief. The relief can only reduce your income tax bill to nil as it must be set against your income tax liability for the tax year.

Capital Gains Tax

Any future sale of EIS qualifying shares is potentially free from capital gains tax provided income tax relief was granted at the time of investment, and not subsequently withdrawn, and the qualifying conditions have been satisfied throughout a period of 3 years.

Capital Gains Tax Deferral

A taxable capital gain made on the disposal of other assets can be reinvested in EIS-qualifying shares and the gain can be deferred until the EIS shares themselves are sold or certain other prescribed events occur. This can result in a reduction in your capital gains tax bill, or a repayment of capital gains tax already paid.

Unlike the income tax rules, there is no limit on the amount of capital gain that can be deferred.

To defer a gain, the investment in the qualifying EIS shares must be made up to 12 months before the gain arose or up to 3 years after the gain arose.

If the deferred gain comes back into charge, then it is subject to capital gains tax at the rate in force at that time, but that gain can be deferred again if it is reinvested in a new EIS-qualifying investment. Furthermore, if you die owning the EIS shares then, under current rules, the deferred gain will cease to exist and will not come back into charge.

Inheritance Tax

EIS-qualifying shares generally qualify for Business Relief (formerly Business Property Relief) for inheritance tax purposes.

This means that EIS shares can be gifted or bequeathed to beneficiaries free from inheritance tax generating a potential saving of 40%. To qualify for Business Relief, the shares must have been held for a period of at least 2 years before the date of death, or in certain circumstances, replaced other assets that qualified for Business Relief.

The rules regarding EIS tax reliefs are complex and the continuing availability of tax reliefs is dependent upon both the company and the individual investor continuing to meet the qualifying criteria.

You should seek independent tax advice if in doubt.

Find out more

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    LS1 5HN

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