Finance raising - part of the tax planning for growing businesses series
Finance raising – part of the tax planning for growing businesses series
When raising funds, essentially you have two main choices:
The position on loan finance is relatively clear – there is no tax relief on capital repayments but tax relief is available on interest costs.
One point to bear in mind is that tax relief is also available on the costs of raising loan finance (e.g. the bank arrangement fee) even if these are capitalised in your accounts.
The commercial implications of issuing new equity can be significant but, looking just at the tax impact, can you structure your business to make it more attractive to new investors?
There are essentially three classes of investor and potential reliefs to benefit them:
- Individuals Enterprise Investment Relief (EIS)
- Companies Corporate Venturing Relief (CVS)
- Venture Capital Trusts (VCT's) Need to invest in qualifying company
The reliefs apply provided certain conditions are met:
· EIS provides income tax relief at 20% on the amount subscribed up to £400,000, the ability to defer capital gains on the total amount subscribed and provides for exemption from capital gains tax on sale.
· CVS provides corporation tax relief on the amount subscribed and the ability to defer the gain on any disposal of the CVS shares into the next CVS investment.
The qualifying conditions for all three investors are broadly similar and mainly relate to the trade carried on; the quantum of non-trading activity (capped at 20%) and gross assets being less than £8 million after the issue of new shares.
Date: 19th March, 2007
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