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The government has suggested investors could receive tax-free dividends from a new type of Enterprise Investment Scheme (EIS) intended to unlock 'patient capital' for 'knowledge-intensive' companies in need of funding.
A consultation paper from the Treasury released alongside the Spring Statement said it was intending to base the new scheme on the existing EIS structure.
EISs are intended to stimulate investment in fledgling small unquoted companies and carry a host of tax breaks. Investors receive 30% income tax relief on up to £1 million invested, with any gains free of capital gains tax, provided the shares are held for at least three years.
Investors need to have an income tax liability at least equal to the relief, but a 'carry back' facility means a liability from the previous year can also count towards this.
Losses on shares sold, less income tax relief given, can be set against income in the year they are disposed of, while capital gains tax on other investments can be deferred if the proceeds are invested in an EIS.
On top of those benefits, the Treasury is consulting on additional incentives for the new scheme.
These could include tax-free dividends, or a write-off of tax on capital gains when they are invested in this new type of EIS. Another option the government suggested was extending the 'carry back' facility for income tax relief.
Investors could also receive tax relief upfront when they invest in the EIS, in contrast to the current EIS rules which only grant tax relief once the EIS manager has invested the money in the fund's underlying companies.