Equity crowdfunders have known for a long time the value of the government-backed Enterprise and Seed Enterprise Investment Schemes (EIS and SEIS).Now, following recent changes made by the Chalncellor of the Exchequer, early stage companies may find they can attract funding from wealthy individuals saving towards their retirement.
The investment service Wealth Club recckons that two new pension rules that came into effect on 6th April 2016 could cost high earners as much as £6 billion in lost tax reliefs, and is advising its clients to look around for tax-efficient deals. "The maximum you can hold tax efficiently in a pension" according to Wealth Club, "has been slashed by 20%."
EIS and SEIS investments get a special deal from the taxman because they are risk-taking investments in companies that need private investment in order to grow, and since growth is good for the economy, the government does its best to offer incentives.
All companies entering into the schemes have to be individually vetted and approved by the taxman, but investors in business hat qualify for the scheme enjoy relief on Income Tax and Capital Gains Tax. And losses on one business can be offset for tax purposes against taxable profit on other companies.
Not for the faint-hearted.
Wealth Club cautions any prospective investors that pension alternatives "are not for the fainthearted.The trade-off is that if you are a high net worth individual or sophisticated investor you could enjoy very significant benefits."
The rule changes affect for taxpayers earning more than £150,000. according to an article on iExpats. If you earn less than £150,000 p.a. you are not the target audience for Wealth Club's marketing. Check the annaouncement on their website, where you can download their free guide.
We know of at least twenty equity crowdfunding platforms that offer 'EIS-friendly' arrangements of one kind or another, and we have no doubt that they, and the entrepreneurs trying to raise funds, will welcome the additional influx of capital.