There are two key tax breaks to look for when it comes to investing on Crowdcube. Both can considerably shrink your income tax and Capital Gains Tax bill while helping to cover losses. Plus, they can be carried back to the previous year to make the most of any tax relief you didn’t use.
The Enterprise Investment Scheme is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares of companies that qualify. For the investor, it’s a tax-efficient way to invest in small companies.
You can invest up to £1,000,000 in any tax year and receive 30% tax relief, as long as you stay invested for at least three years. An additional £1,000,000 is eligible for the same 30% relief for investment in “knowledge-intensive” companies.
On top of that, Capital Gains Tax on EIS shares can be deferred if you reinvest the gains into an EIS-eligible company. Or - if you make a loss on your investment - you can offset the loss against your tax bill for that year or the previous year.
SEIS is a derivative of the Enterprise Investment Scheme (EIS) that targets younger, smaller companies to encourage seed investment. At Crowdcube, we no longer conduct raises with SEIS support, but we’ve included it here so you can stay informed.
Investors, including directors, can receive initial tax relief of 50% on investments up to £100,000 and Capital Gains Tax (CGT) exemption for half of any gain on the SEIS shares if they are reinvested into another SEIS-eligible company.
Seed investing is always riskier, so the loss relief benefit of the scheme is incredibly attractive. Like EIS, if your investment makes a loss, you can offset the loss against your tax bill for that year or the previous year.
Maximum investment eligible for relief
£1 million invested only in “knowledge-intensive” companies
Income tax relief
30% of the sums invested, up to the annual investment limit, provided the shares are held for three years.
Capital Gains Tax reinvestment relief
100% of the CGT payment can be deferred if capital gain is re-invested in EIS eligible shares.
Capital Gains Tax disposal relief
CGT deferral exemption is available if shares are held for three years and income tax relief has been claimed.
If the shares are disposed of at a loss, you can offset the loss against income tax of that year or of the previous year.
You can offset some - or all - of this year’s tax relief against income tax from the previous tax year, as long as this does not exceed the previous tax year’s allowance.
What are the eligibility criteria for a company?
< 7 years old*
< £15 million gross assets
< 250 employees
How much can a company raise?
£5 million per year
£12 million in its lifetime
Who can claim?
Who can’t claim?
If you hold more than 30% of the share capital or voting rights in the company.
If you are an employee or an associate of an employee (including directors)
When can you claim?
From: Four months after the business began trading.
Until: Five years after 31st January in the tax year after you made the investment.
*Requirements for knowledge-intensive companies differ and can be found here.
The “carry back” facility allows investors to elect for all or part of EIS/SEIS eligible shares to be treated as though they were purchased in the previous tax year. This allows you to claim any unused tax relief from the previous year. So - if you did not claim any tax relief last year - you can double your allowance for this year by carrying it back.
The amount you can carry back is limited by your maximum allowance for that year. So if you used up all of your tax relief last year, you can’t carry anything back.
Example 1 - carrying back all of the relief
You invest £20,000 in the year 2020-2021 in EIS qualifying shares. The EIS relief available is £6,000 (30% of the £20,000 investment).
Say your tax liability from the previous year (2019-2020) is £15,000 before SEIS relief. You can carry all of the EIS relief back, reducing your tax liability to £9,000 (£15,000 - £6,000).
Example 2 - unable to use all of the relief
Again, you invest £20,000 in the year 2020-2021 in EIS qualifying shares. The EIS relief available is £6,000 (30% of the £20,000 investment).
Now, say your tax liability from the previous year (2019-2020) is lower: £5,500 before EIS relief. This time, you can reduce your tax bill to zero as a result of this EIS investment, but the rest of the relief is lost: £500 (£6,000 - £5,500).
For more information, please see the HMRC website.
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.
Investing in start-ups and early-stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Crowdcube is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own investment decisions. You will only be able to invest via Crowdcube once you are registered as sufficiently sophisticated. Please click here to read the full Risk Warning.
Crowdcube is authorised and regulated by the Financial Conduct Authority (FCA) and the Comisión Nacional del Mercado de Valores (CNMV). This page has been approved by Crowdcube. Pitches for investment are not offers to the public and investments can only be made by members of crowdcube.com on the basis of information provided in the pitches by the companies concerned. Further restrictions and Crowdcube's limitation of liability are set out in the Investor Terms and Conditions.
Investment opportunities are not offers to the public and investors must be eligible Crowdcube members. Please seek independent advice as required as Crowdcube does not give investment or tax advice.