Last week, the Labour government outlined its budget for the forthcoming year. The Autumn Budget, delivered by Chancellor of the Exchequer Rachel Reeves, sought to address a “black hole” of insufficient funds to fund the government’s programs.
One path to generate more funds was an increase in the Capital Gains Tax (CGT). As was previously reported, startups are concerned this will harm sector growth and hamper innovation as it may dim investments and make it more challenging to pay employees at early-stage firms.
Republic Europe recently distributed an email highlighting how two tax programs may help mitigate the impact. The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) can reduce CGT to zero for investors. If an issuer is approved under either program, investors immediately receive a credit back on invested funds and pay no capital gains after three years. Both EIS and SEIS are used by investment crowdfunding platforms in the UK.
Republic explains how EIS/SEIS can help investors:
- Capital Gains Tax (CGT) Advantage: With the increase in CGT from 20% to 24%, SEIS and EIS provide alternative relief. SEIS offers CGT exemption on qualifying gains, while EIS enables investors to defer CGT exposure, giving them more flexibility in managing taxable gains.
- Inheritance Tax Relief: SEIS and EIS investments maintain their 100% inheritance tax exemption, making them potential solutions in contrast to other investments that have lost similar benefits.
- SEIS Reinvestment Relief: With CGT now at a higher rate, SEIS’s reinvestment relief has become enhanced, helping people to reinvest gains more effectively.
Republic Europe highlights some of the offerings raising funds now on the platform, including an SEIS fund that reports over £26 million invested in 140 start-ups to date including 11 exits generating +10x multiple in 2023.
