• Yearlings

 Syndicate Tax Implications

On the back of two successful pinhooking syndicates and increased investment, it has been drawn to my attention that we should be working within a more tax efficient scheme for the third syndicate.  We have therefore entered into an Enterprise Investment Scheme (EIS).

The precise terms of EIS are of course a touch more complicated but I believe that all of the significant considerations are outlined below:

• The participators invest their capital in the form of shares in a limited liability company.

• The trade must operate for a minimum of three years.

• Subscribers receive 30% tax relief on the cost of their shares (you therefore need to consider the size of your investment in comparison to your personal tax bill). You can also carry back the amount subscribed to one previous tax year.

• There is no chargeable gain arising on the disposal of the shares at the end of trade.

• The cost of the shares can be used to defer capital gains tax on other gains. The deferral of CGT can be applied to any capital gain in the three years leading up to the issue of the shares or in the 12 months after the shares are issued.

It is therefore possible to obtain up to 58% tax relief on the cost of the shares almost immediately.

• The company then trades in the normal way, paying corporation tax on profits (almost certainly 20%). At the end of the company’s three year life, if there is a profit, there is no further tax on the shareholders but they do get Income Tax relief on any further loss.
I hope that this explains everything. 

For more detailed information please visit www.hmrc.gov.uk/eis.