REFERENDUM RESULTS AND DISCUSSION THREAD

[Penk Wolf]

http://www.telegraph.co.uk/investin...estors-gain-from-the-tax-breaks-for-the-rich/

100% deduction for what you invest off your taxable income - 30% relief (sorry guys, tax relief is limited to max £1m per annum so don't get too excited!)
Loss relief if the investment fails
so depending on the investor's tax bracket, for every £ invested c35p risk to the investor for 100% upside, c65p risk to the Treasury (ie rest of the taxpayers) for zero upside
oh yeah, and capital gains relief on the gain when you dispose of the shares as well

very nice if you can afford it.

How many companies have been saved against how many have failed? Obviously, not a question you can answer as no-one will have the answer to the first question. Ultimately, it's the banks not lending to certain businesses which has made this a necessary.

 

[nimrod]

How many companies have been saved against how many have failed? Obviously, not a question you can answer as no-one will have the answer to the first question. Ultimately, it's the banks not lending to certain businesses which has made this a necessary.

I don't think it's really about 'saving' a business. many of these businesses are set up from the outset specifically with these schemes in mind. and you can see they give substantial tax relief for the very rich. I've no problem with someone taking an investment risk, but this is a skewed scheme in terms of that investment risk don't you think? I don't know but suspect there are far more failures than normal with these businesses because of that skew (ie a lack of proper DD because the investor benefits are so high).

if it's about investment why not just collect the taxes that are due and set up a Gvt investment scheme to invest in these businesses so that the nation's Taxpayers benefit from the investment rather than simply underwriting a rich man's bad decisions?

 

[Johnny75]

http://www.telegraph.co.uk/investin...estors-gain-from-the-tax-breaks-for-the-rich/

100% deduction for what you invest off your taxable income - 30% relief (sorry guys, tax relief is limited to max £1m per annum so don't get too excited!)
Loss relief if the investment fails
so depending on the investor's tax bracket, for every £ invested c35p risk to the investor for 100% upside, c65p risk to the Treasury (ie rest of the taxpayers) for zero upside
oh yeah, and capital gains relief on the gain when you dispose of the shares as well

very nice if you can afford it.

Sorry to burst your 'hate the rich' bubble but this scheme was introduced by the labour party over 10 years ago. I would not have been able to fund my company if this did not exist. As Penk has said it is the lack of available funds elsewhere that has put successive governments in this position. Of course the Telegraph has this wrong, it is actually SEIS (Seed Enterprise Investment Scheme) rather than EIS. SEIS is the 60% tax protection and is offset by the company's Di-Minimus (Allowed funding before tax, set by the EU C€200K). EIS, which the Telegraph reports wrongly, is a 30% tax break for investors and covers losses and capital gains.

It is the company that has to do financial checks/ money laundering and then apply to HMRC for SEIS and EIS share capital status. HMRC can refuse anybody and as successive governments need investors in businesses and need businesses to employ people they thought it a good idea to employ people to oversee this process. Seems a sound financial plan by the Labour government if you ask me.

Many of my investors are small investors (below £10K) but together they have helped me raise over £250K. It also helps get a diverse range of opinions and help to start-ups which do not have the management structure in place.

Of course we could scrap the scheme, so Nimrod, how would you help investors put money into start-ups that banks wont help?

 

[Johnny75]

I don't think it's really about 'saving' a business. many of these businesses are set up from the outset specifically with these schemes in mind. and you can see they give substantial tax relief for the very rich. I've no problem with someone taking an investment risk, but this is a skewed scheme in terms of that investment risk don't you think? I don't know but suspect there are far more failures than normal with these businesses because of that skew (ie a lack of proper DD because the investor benefits are so high).

if it's about investment why not just collect the taxes that are due and set up a Gvt investment scheme to invest in these businesses so that the nation's Taxpayers benefit from the investment rather than simply underwriting a rich man's bad decisions?

I'm not sure if you are being deliberately obtuse or you do not understand how this works because you are basing your knowledge off one article. There are Gvt investment schemes and due to the rules in place from the EU (naughty EU putting safeguards in) governments have to match their pound notes with private funds. This, along with DD prevents risky investments.

The schemes are not designed for the very rich, they are designed at savers who do not get good return from their investment. Often they are in a pool of other investments and so savers can offset the risk. I'm glad you've no problem with people making investments, how big of you, it also shows a staggering lack of understanding of getting investment into small start-ups.

 

[Penk Wolf]

I don't think it's really about 'saving' a business. many of these businesses are set up from the outset specifically with these schemes in mind. and you can see they give substantial tax relief for the very rich. I've no problem with someone taking an investment risk, but this is a skewed scheme in terms of that investment risk don't you think? I don't know but suspect there are far more failures than normal with these businesses because of that skew (ie a lack of proper DD because the investor benefits are so high).

if it's about investment why not just collect the taxes that are due and set up a Gvt investment scheme to invest in these businesses so that the nation's Taxpayers benefit from the investment rather than simply underwriting a rich man's bad decisions?

I know of a lot of companies that would have gone bust without peer to peer lending, so yes, peer to peer lending (Whether EIS or not) has saved a lot of companies. The money is pretty expensive, so a lot of companies will only borrow at those rates as a necessity. However, as the return is so good, there is absolutely no reason for the Government to incentivise/protect it.

From my experience, some peer to peer lending companies want chapter and verse (rightly so) and others (probably the biggest) don't ask for much more than your company number.

 

[nimrod]

I know of a lot of companies that would have gone bust without peer to peer lending, so yes, peer to peer lending (Whether EIS or not) has saved a lot of companies. The money is pretty expensive, so a lot of companies will only borrow at those rates as a necessity. However, as the return is so good, there is absolutely no reason for the Government to incentivise/protect it.

From my experience, some peer to peer lending companies want chapter and verse (rightly so) and others (probably the biggest) don't ask for much more than your company number.

and not just protect it, but CGT free.

if some just ask for a company number then that's even worse than I would have ever have imagined and suggests more a tax wheeze than a sound basis for investment.

 

[Penk Wolf]

and not just protect it, but CGT free.

if some just ask for a company number then that's even worse than I would have ever have imagined and suggests more a tax wheeze than a sound basis for investment.

They have the last set of accounts and management accounts too, but that is it. I think it's more about high risk savings rather than the tax wheeze. I've looked at investing in it but only from the point of view that you get 10%ish return on your money and not the protection side (Wasn't aware of it until your post and article).

I assumed it was a tax on the interest rather than capital gains tax?

 

[Johnny75]

They have the last set of accounts and management accounts too, but that is it. I think it's more about high risk savings rather than the tax wheeze. I've looked at investing in it but only from the point of view that you get 10%ish return on your money and not the protection side (Wasn't aware of it until your post and article).

I assumed it was a tax on the interest rather than capital gains tax?

You should have a look at SEIS and EIS for any investment. Your protection is 60% of your investment against your tax for SEIS and 30% for EIS. It isn't a tax wheeze, it is a way of getting investment into business. Anybody that thinks otherwise needs educating.

The CGT break Nimrod so vehemently opposes only applies in the event of a buyout and has to be after 3 years, anything else is CGT applicable, so no carpetbagging.

I have tried to explain this above but clearly it has fallen on deaf ears.

 

[nimrod]

They have the last set of accounts and management accounts too, but that is it. I think it's more about high risk savings rather than the tax wheeze. I've looked at investing in it but only from the point of view that you get 10%ish return on your money and not the protection side (Wasn't aware of it until your post and article).

I assumed it was a tax on the interest rather than capital gains tax?

the EIS scheme is for shares. So you invest with all the downside protections and if the company succeeds you can sell the shares CGT free. there may be other scheme covering lending so not sure we are talking about the same thing.

from a tax receipts perspective it's relevant because someone rich enough could invest a mill in a tax year and get £300k immediately off their tax bill.

 

[Johnny75]

the EIS scheme is for shares. So you invest with all the downside protections and if the company succeeds you can sell the shares CGT free. there may be other scheme covering lending so not sure we are talking about the same thing.

from a tax receipts perspective it's relevant because someone rich enough could invest a mill in a tax year and get £300k immediately off their tax bill.

This isn't true. It is SEIS for 100% CGT breaks not EIS and SEIS is limited to €200K investment per 3 years. Both schemes are for shares, you cannot loan the business money under these schemes.

Both schemes are also under EU control.

 

[nimrod]

This isn't true. It is SEIS for 100% CGT breaks not EIS and SEIS is limited to €200K investment per 3 years. Both schemes are for shares, you cannot loan the business money under these schemes.

Both schemes are also under EU control.

from gov.uk EIS scheme rules

1.2.2 Capital Gains Tax exemption
If you have received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for the period referred to at paragraph 1.2.1 Income Tax Relief (above), any gain is free from Capital Gains Tax.

 

[Johnny75]

from gov.uk EIS scheme rules

1.2.2 Capital Gains Tax exemption
If you have received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for the period referred to at paragraph 1.2.1 Income Tax Relief (above), any gain is free from Capital Gains Tax.

You need to read the rest of the rules. The time limit is key there. SEIS is 100% CGT and the income tax is 60% but the amount you invest is limited. SEIS is also limited to pre-revenue companies. EIS cannot apply to those people that are already directors or involved in the company, it has to be fresh or follow-on investment. Again subject to the 30% and subject to disposal rules in the articles of assoc or shareholders agreement. It is important to note that it is the cost of the shares not the share price.

What we are describing is favourable conditions for investment, they are not completely without risk and it does mean that people that can afford it will likely choose to invest in companies and build infrastructure/ business and therefore increase tax revenue and employment. Where is the harm in creating tax and employment?

It also means if any government investment vehicle has been used they too will benefit from the sale or disposal of the company shares.

 

[nimrod]

You need to read the rest of the rules. The time limit is key there. SEIS is 100% CGT and the income tax is 60% but the amount you invest is limited. SEIS is also limited to pre-revenue companies. EIS cannot apply to those people that are already directors or involved in the company, it has to be fresh or follow-on investment. Again subject to the 30% and subject to disposal rules in the articles of assoc or shareholders agreement. It is important to note that it is the cost of the shares not the share price.

What we are describing is favourable conditions for investment, they are not completely without risk and it does mean that people that can afford it will likely choose to invest in companies and build infrastructure/ business and therefore increase tax revenue and employment. Where is the harm in creating tax and employment?

It also means if any government investment vehicle has been used they too will benefit from the sale or disposal of the company shares.

I've read the rules johnny. that's how I knew it was CGT exempt. i've put one in place for a client.

here's a useful summary
http://www.rossmartin.co.uk/companies/seis-eis/560-enterprise-investment-scheme-eis

if we need to go there you'll note the reliefs are greater than what i've written - for instance, if you already have a Gain, you can defer the CGT by investing in an EIS scheme. Plus Inheritance tax benefits etc..

I don't have a problem with encouraging investment, I said that these rules are skewed. in a loss situation taxpayers have effectively taken >50% of the investment risk for none of the upside. I don't think that's right. there's no reason to suppose a fairer scheme would discourage investment and may in fact encourage better investment.

 

[Tyrannosaurus Dan]

That's a very poor and telling comment frank. Should we only care about ourselves?

Quite sad really if that is your view, I thought better of you.

That was my immediate thought too.

We don't struggle to put food on the table (although it's not as easy as I'd like it to be) but I am definitely concerned about those that do.

A lot of my grievances towards the government are based on the impact of their policies on the country as a whole rather than how they affect me personally.

 

[Paddingtonwolf]

You have to hold shares for three years to get Tax Relief.

I designed share option schemes for 20 years so I like to think I know a bit about it.

 

[Johnny75]

I don't have a problem with encouraging investment, I said that these rules are skewed. in a loss situation taxpayers have effectively taken >50% of the investment risk for none of the upside. I don't think that's right. there's no reason to suppose a fairer scheme would discourage investment and may in fact encourage better investment.

I don't agree with that at all. If you think that you get the same investment or will increase investment without giving incentives then I think you do not understand investors and small companies (I have experience of investors that will not invest without EIS/ SEIS given at time of the pitch). What evidence do you have that it would increase investment?

I would like to think I have a pretty good understanding of this from a company's (I own) point of view as I've done both SEIS and EIS rounds of funding for separate investors both pre and post revenue.

Edit: My whole point at the start of this tis that nothing has really changed in the decade or so this scheme has been introduced, this isn't because of Brexit.

 

[Jolemai]

A good read:

http://www.theneweuropean.co.uk/art..._parliament_and_how_he_reacted_1_4789695?=kok

 

[nimrod]

You have to hold shares for three years to get Tax Relief.

I designed share option schemes for 20 years so I like to think I know a bit about it.

that's right, but you take income tax relief as it arises, you don't have to wait the full three years. if you sold the shares in the 3 year period, which nobody would do unless they're sufficiently compensated for, then the tax relief could be clawed back. if the company goes bust in the three year period, you won't lose the relief.

of course 3 years is not a long time for a start up.

 

[Johnny75]

that's right, but you take income tax relief as it arises, you don't have to wait the full three years. if you sold the shares in the 3 year period, which nobody would do unless they're sufficiently compensated for, then the tax relief could be clawed back. if the company goes bust in the three year period, you won't lose the relief.

of course 3 years is not a long time for a start up.

3 years is an eternity for a start up and will be the point of highest risk. If still going after 3-5 years then there will either be follow-on capital injection, refinancing or buying of some sort that will be the safest point to sell. All of my investors want to sell companies in their portfolio in this period as it maximses investment. I am sure you know that.

 

[Deutsch Wolf]

A good read:

http://www.theneweuropean.co.uk/art..._parliament_and_how_he_reacted_1_4789695?=kok

Get outta here with your facts and reason.

"Waffling cant" isn't far off how I'd describe most Brexit supporting politicians...