Government set to crack down on tax perks for well-off investors
Popular investment schemes offering generous tax breaks for wealthier investors are likely to face new restrictions.
The Treasury is mulling a crackdown on Enterprise Investment Schemes, likely to be announced in the next Budget on November 22. The scheme allows people to invest in start-ups, either directly or through funds, and provides handsome tax breaks for doing so.
Currently someone investing in an EIS will get 30pc income tax relief: anyone investing £100,000 will get £30,000 back via their tax return. There are also capital gains tax savings that can be made if the investments generate profits.
Industry sources say the Treasury is alert to claims that the schemes are being exploited as a means of tax avoidance.
Among the suggestions are cutting the tax relief on offer, or restricting the companies that qualify for funding, or making investors hold the companies for longer.
Alex Davies, chief executive of Wealth Club, which specialists in tax-efficient investments, believes that “asset-backed” businesses will no longer be allowed inside EIS. These are companies that have assets (such as property) with which to repay investors should the business fail – and are seen as safer investments.
Mr Davies said: “The Chancellor’s inaugural autumn Budget this November is likely to herald restrictions to asset-backed EIS investments, which includes early-stage companies that are generally considered to be less risky, such as pubs, hotel chains and crematoria.
“Such restrictions will force investors into riskier EIS ventures and ones that do not offer the safety-net of company assets, should ventures go bust.”
HMRC figures show that more than £1.8bn was invested in 5,500 companies last year through the EIS and the related “Seed Enterprise Investment Scheme”. The latter scheme applies to earlier-stage companies that are less than two years old.
The Government has already restricted the requirements around EIS. Currently, only companies with assets under £15m qualify for EIS funding, and they can only receive a maximum of £5m a year in investment.