How to Claim Income Tax Relief on Venture Capital Investments

Posted by on May 19, 2021 in Personal Tax | No Comments

For individuals with disposable income, making Venture Capital investments is growing in popularity, mainly through the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS).

Under the schemes, the government is encouraging investment in eligible companies by offering a range of tax reliefs to investors who purchase new shares in those companies.

The initial tax relief is on Income Tax and this is usually claimed through your personal tax return.

A crucial point is that claiming Income Tax relief is a requirement to be able to apply the Capital Gains Tax exemption should the investment make a return in the future.

In a scenario where you have invested £5,000 each under EIS in four companies in the tax year, this gives you potential Income Tax relief of £6,000.  However, your Income Tax paid in the year is £3,000 with nothing in the preceding year.  As a result, the maximum relief you can claim is £3,000 to bring your Income Tax paid back to zero.

Whilst including the details of two of the investments would meet the arithmetic goal of clearing down your Income Tax, you need to include the details of all four venture capital investments and split the relief across them.

In order to claim the Income Tax relief on venture capital investments, you must have received a Compliance Certificate from the company that you have invested in which will provide the following information for your tax return:

  • the Unique Investment Reference
  • the name of the company invested in
  • the amount on which you are claiming relief for this year
  • the date of issue of the shares

The Compliance Certificates do not need to be submitted with your personal tax return but should been kept safely as HMRC make ask for them in the future.


 

Jon Cooper is a director and senior accountant at Cooperfaure where he shares his knowledge and experience by publishing these helpful guides and articles in our blog.  If you find this information useful, be sure to subscribe to receive regular updates.