Investors
Enterprise Investment Scheme
Qualifying Investor
(a) Income Tax
An individual need not be a UK resident but the EIS Relief is only available as a credit against an individual’s UK tax liability. An individual must not be “connected” with the Company at any time in the period beginning two years before the issue of the shares and ending immediately before the third anniversary of the issue date or, if relevant, the third anniversary of the date of commencement of the relevant qualifying business activity. The main rules relating to “connection” with a company are that the individual and/ or his or her associates must not: be an employee, partner or paid director of the Company or any subsidiary, or directly or indirectly possess or be entitled to acquire more than 30 per cent of the issued ordinary share capital, or the voting power of the Company or any subsidiary, or possess directly or indirectly such rights as would, in the event of the winding up of the Company or any subsidiary or in any other circumstances, entitle him to receive more than 30 per cent of the assets of the company or any subsidiary which would then be available for distribution to equity holders (shareholders and certain loan capital holders). For this purpose an “associate” includes a husband or wife, civil partner, lineal ancestor or descendant, a partner and certain persons with whom the individual has a connection through a trust.
(b) Capital Gains Tax
An individual must be resident in the UK at the time of the accrual of the capital gain and at the time when he or she makes the qualifying investment. If a UK resident they must also not be regarded for the purposes of any tax treaty as resident in another country. UK resident trustees of discretionary trusts (if all the beneficiaries are individuals) and UK resident trustees of interest in possession settlements (to the extent that individuals hold the interests in possession) may claim EIS Deferral Relief provided that the asset disposed of which gives rise to the gain and the shares acquired are held on the terms of the same trusts. For CGT Deferral relief the investor may be ‘connected’ with the Company.
Qualifying Company Must be unquoted (which includes AIM).Must exist wholly for the purpose of carrying on one or more “qualifying trades” or be the parent company of a trading group.Must not at any time in the “relevant period” (as defined above) : (i) Control another company other than a qualifying subsidiary or (ii) Be controlled by another company The value of the company’s gross assets must not exceed £15m immediately before the issue of EIS shares and must not exceed £16m immediately afterwards. The test applies by reference to the aggregate gross assets of the company and its subsidiaries.The company must have fewer than 250 full-time employees at the date on which the shares are issued. In addition, the amount raised under EIS is limited to £5m in any 12-month period.Must not be in difficulty (as defined by the EU guidelines on State Aid) and therefore meets the Financial Health requirement.
Qualifying Trade
The Company must have a permanent establishment in the UK and the Directors will undertake, so far as it is within their power to do so, to ensure that the Company’s affairs will be conducted so as to obtain and maintain qualifying status under the EIS throughout the relevant period.
Tax Benefits
This is a summary only of the main provisions of certain relief schemes in respect of taxation. This section does not set out the relevant provisions in full and does not constitute, or purport to offer advice, in respect of taxation. Accordingly, Investors are strongly advised to seek professional advice as to the tax relief that their particular investment will attract and the tax consequences of selling or otherwise disposing of Ordinary Shares.
The Company is raising finance to develop its exploration assets, with the opportunity for investors to take advantage of the tax benefits offered by the EIS. EIS is a UK Government Tax Scheme, which is designed to encourage investment in certain types of projects by offering generous tax incentives and reliefs.
EIS is a vital element in the flow of investment funds from the private sector into small companies. The cost to the UK Treasury is more than offset by the employment and tax revenues from employers and employees created by SMEs. The UK leads the venture capital industry in Europe and the relative success of the EIS in providing finance for small companies in Britain is considerably greater than similar schemes in other European territories. It is anticipated that UK tax paying investors will be eligible for Enterprise Investment Scheme tax benefits based on their investment in the Company. EIS Investments offer the following potential benefits to investors:
Income Tax Relief
Individuals who qualify may deduct an amount that is equal to tax at 30% on the amounts subscribed for eligible shares in qualifying companies from their total liability to income tax for the tax year in which the shares are issued.
EIS Relief for the tax years 2015/16 and 2016/17 is obtained at a rate of 30 per cent. The maximum investment for 2015/16 onwards is £1,000,000 per tax year.
Spouses and civil partners are entitled to invest a maximum of £1,000,000 each, previously £500,000. For income tax purposes (but not CGT deferral, see below), the individual does not need to be a UK resident or ordinarily resident. Income tax relief is, however, only available where an Investor has a UK income tax liability. The amount of income tax relief cannot exceed an individual’s tax liability before other reliefs given by way of discharge of tax. Relief is normally given in the tax year in which the individual invests, although the amount invested (or part thereof) may be regarded as invested in the previous tax year if a claim is made.
Capital Gains Tax Exemption
If an Investor disposes of shares three or more years after the date of issue he or she will be exempt from CGT on any gain realised provided that EIS income tax relief was obtained on the amount subscribed for the shares and that the EIS income tax relief has not been withdrawn. The exemption does not extend to any gain deferred by CGT deferral.
Capital Gains Tax Deferral Relief
CGT deferral enables Investors to defer capital gains by reinvesting in qualifying investments. Provided a capital gain realised (on any asset) is reinvested in new “Eligible Shares” of a “Qualifying Company” within 3 years of the disposal giving rise to the gain or not more than 1 year prior to a disposal giving rise to a gain, assessment to tax on the gain arising may be deferred until the qualifying investment is sold or otherwise ceases to qualify.
At this point, the deferred gain would come back into charge to tax. The legislation, conditions and anti-avoidance rules for deferral relief are broadly similar to those for EIS income tax relief. (CGT deferred will become payable at the rate in force at the time when the investment is realised or ceases to qualify). Eligible Investors may therefore be able to combine the above reliefs so as to achieve initial relief of 58p in the £1.
Inheritance Tax
The shares would usually qualify for Business Property Relief for Inheritance Tax purposes if the shares have been held at least 2 years in most cases, as the company will be a qualifying trading company.
Loss Relief
Where an Investor incurs a loss on the first disposal of their shares, the loss (calculated after deducting EIS income tax relief from the base cost) usually may be set against either chargeable gains or taxable income at the election of the Investor.
Illustrations
Although each Investor must invest the initial amount in full they will be able to claim back the tax relief via their tax return and therefore the net cost the Investor will be the amount once the tax reliefs have been returned. Please note that the examples given in this section are illustrative only and assume that at all relevant times the Company qualifies for EIS relief. They are not, and should not be, construed as forecasts of the likely performance of the investment offered.
(a) Income Tax
An individual need not be a UK resident but the EIS Relief is only available as a credit against an individual’s UK tax liability. An individual must not be “connected” with the Company at any time in the period beginning two years before the issue of the shares and ending immediately before the third anniversary of the issue date or, if relevant, the third anniversary of the date of commencement of the relevant qualifying business activity. The main rules relating to “connection” with a company are that the individual and/ or his or her associates must not: be an employee, partner or paid director of the Company or any subsidiary, or directly or indirectly possess or be entitled to acquire more than 30 per cent of the issued ordinary share capital, or the voting power of the Company or any subsidiary, or possess directly or indirectly such rights as would, in the event of the winding up of the Company or any subsidiary or in any other circumstances, entitle him to receive more than 30 per cent of the assets of the company or any subsidiary which would then be available for distribution to equity holders (shareholders and certain loan capital holders). For this purpose an “associate” includes a husband or wife, civil partner, lineal ancestor or descendant, a partner and certain persons with whom the individual has a connection through a trust.
(b) Capital Gains Tax
An individual must be resident in the UK at the time of the accrual of the capital gain and at the time when he or she makes the qualifying investment. If a UK resident they must also not be regarded for the purposes of any tax treaty as resident in another country. UK resident trustees of discretionary trusts (if all the beneficiaries are individuals) and UK resident trustees of interest in possession settlements (to the extent that individuals hold the interests in possession) may claim EIS Deferral Relief provided that the asset disposed of which gives rise to the gain and the shares acquired are held on the terms of the same trusts. For CGT Deferral relief the investor may be ‘connected’ with the Company.
Qualifying Company Must be unquoted (which includes AIM).Must exist wholly for the purpose of carrying on one or more “qualifying trades” or be the parent company of a trading group.Must not at any time in the “relevant period” (as defined above) : (i) Control another company other than a qualifying subsidiary or (ii) Be controlled by another company The value of the company’s gross assets must not exceed £15m immediately before the issue of EIS shares and must not exceed £16m immediately afterwards. The test applies by reference to the aggregate gross assets of the company and its subsidiaries.The company must have fewer than 250 full-time employees at the date on which the shares are issued. In addition, the amount raised under EIS is limited to £5m in any 12-month period.Must not be in difficulty (as defined by the EU guidelines on State Aid) and therefore meets the Financial Health requirement.
Qualifying Trade
The Company must have a permanent establishment in the UK and the Directors will undertake, so far as it is within their power to do so, to ensure that the Company’s affairs will be conducted so as to obtain and maintain qualifying status under the EIS throughout the relevant period.
Tax Benefits
This is a summary only of the main provisions of certain relief schemes in respect of taxation. This section does not set out the relevant provisions in full and does not constitute, or purport to offer advice, in respect of taxation. Accordingly, Investors are strongly advised to seek professional advice as to the tax relief that their particular investment will attract and the tax consequences of selling or otherwise disposing of Ordinary Shares.
The Company is raising finance to develop its exploration assets, with the opportunity for investors to take advantage of the tax benefits offered by the EIS. EIS is a UK Government Tax Scheme, which is designed to encourage investment in certain types of projects by offering generous tax incentives and reliefs.
EIS is a vital element in the flow of investment funds from the private sector into small companies. The cost to the UK Treasury is more than offset by the employment and tax revenues from employers and employees created by SMEs. The UK leads the venture capital industry in Europe and the relative success of the EIS in providing finance for small companies in Britain is considerably greater than similar schemes in other European territories. It is anticipated that UK tax paying investors will be eligible for Enterprise Investment Scheme tax benefits based on their investment in the Company. EIS Investments offer the following potential benefits to investors:
Income Tax Relief
Individuals who qualify may deduct an amount that is equal to tax at 30% on the amounts subscribed for eligible shares in qualifying companies from their total liability to income tax for the tax year in which the shares are issued.
EIS Relief for the tax years 2015/16 and 2016/17 is obtained at a rate of 30 per cent. The maximum investment for 2015/16 onwards is £1,000,000 per tax year.
Spouses and civil partners are entitled to invest a maximum of £1,000,000 each, previously £500,000. For income tax purposes (but not CGT deferral, see below), the individual does not need to be a UK resident or ordinarily resident. Income tax relief is, however, only available where an Investor has a UK income tax liability. The amount of income tax relief cannot exceed an individual’s tax liability before other reliefs given by way of discharge of tax. Relief is normally given in the tax year in which the individual invests, although the amount invested (or part thereof) may be regarded as invested in the previous tax year if a claim is made.
Capital Gains Tax Exemption
If an Investor disposes of shares three or more years after the date of issue he or she will be exempt from CGT on any gain realised provided that EIS income tax relief was obtained on the amount subscribed for the shares and that the EIS income tax relief has not been withdrawn. The exemption does not extend to any gain deferred by CGT deferral.
Capital Gains Tax Deferral Relief
CGT deferral enables Investors to defer capital gains by reinvesting in qualifying investments. Provided a capital gain realised (on any asset) is reinvested in new “Eligible Shares” of a “Qualifying Company” within 3 years of the disposal giving rise to the gain or not more than 1 year prior to a disposal giving rise to a gain, assessment to tax on the gain arising may be deferred until the qualifying investment is sold or otherwise ceases to qualify.
At this point, the deferred gain would come back into charge to tax. The legislation, conditions and anti-avoidance rules for deferral relief are broadly similar to those for EIS income tax relief. (CGT deferred will become payable at the rate in force at the time when the investment is realised or ceases to qualify). Eligible Investors may therefore be able to combine the above reliefs so as to achieve initial relief of 58p in the £1.
Inheritance Tax
The shares would usually qualify for Business Property Relief for Inheritance Tax purposes if the shares have been held at least 2 years in most cases, as the company will be a qualifying trading company.
Loss Relief
Where an Investor incurs a loss on the first disposal of their shares, the loss (calculated after deducting EIS income tax relief from the base cost) usually may be set against either chargeable gains or taxable income at the election of the Investor.
Illustrations
Although each Investor must invest the initial amount in full they will be able to claim back the tax relief via their tax return and therefore the net cost the Investor will be the amount once the tax reliefs have been returned. Please note that the examples given in this section are illustrative only and assume that at all relevant times the Company qualifies for EIS relief. They are not, and should not be, construed as forecasts of the likely performance of the investment offered.
What Would Happen If I Were To Sell My Shares After Three Years at a profit?
You will not have to pay any tax at all on any profits made from the sale of your Ordinary Shares (provided that the Company retains its EIS qualifying status) if you sell them after three years or if the Company is wound up and the assets distributed. The example given in Table A assumes acquisition of Ordinary Shares, that only income tax relief at 30% has been given.
You will not have to pay any tax at all on any profits made from the sale of your Ordinary Shares (provided that the Company retains its EIS qualifying status) if you sell them after three years or if the Company is wound up and the assets distributed. The example given in Table A assumes acquisition of Ordinary Shares, that only income tax relief at 30% has been given.
The example given in Table B assumes acquisition of Ordinary shares and that CGT deferral at 28% and Income Tax relief at 30% has been applied plus CGT on deferral on crystallised gain at 28% (Higher rate Taxpayers)
What Would Happen If I Were To Sell My Ordinary Shares and Lose Money?
If an Investor’s Ordinary Shares are disposed of at a loss to the subscription price the allowable loss for capital gains tax purposes is calculated by reducing that loss by the amount of the EIS tax relief. The reduced loss can be set against gains or by election against income. The table below demonstrates the loss an Investor would incur if his/her Ordinary Shares were sold at a loss to the original subscription price.
If an Investor’s Ordinary Shares are disposed of at a loss to the subscription price the allowable loss for capital gains tax purposes is calculated by reducing that loss by the amount of the EIS tax relief. The reduced loss can be set against gains or by election against income. The table below demonstrates the loss an Investor would incur if his/her Ordinary Shares were sold at a loss to the original subscription price.
The example given above assumes only income tax relief at 30% has been applied and that the Investor is a 45% taxpayer in the year of disposal.
Investment Process - S/EIS
