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Government floats tax-free dividends for new EIS funds

Government floats tax-free dividends for new EIS funds

by Daniel Grote Mar 13, 2018 at 16:34


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.

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Comments  (2)

  • Jim S: 

    Great, lets make the tax system more complicated and add another loophole to benefit rich investors with accountants.

    12:41 on 16 March 2018

  • Cynical Investor: 

    Astute investors do understand the High Risk which comes with Cutting edge Technology which can and does fail occasionally. There are, of course, potentially high Rewards, however these are not achieved quickly and as the rules dictate will take at least 3 years to be achieved. In reality most Fledgling Company's require sequential funding rounds which ultimately drags out any eventual profit way beyond 3years.

    10:07 on 17 March 2018

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