Year End Tax Planning – Claiming Back 2021-22 Income Tax

Mar 9, 2023

Year End Tax Planning – Claiming Back 2021-22 Income Tax

Mar 9, 2023

With only 4 weeks to go to the end of the tax year, investors and financial advisers are considering Enterprise Investment Scheme (EIS) investment opportunities to generate non-market correlated returns and reduce income tax liabilities for both the 2021/22 and 2022/23 tax years.

For client’s looking to offset income tax relating to the 2021/22 tax year, funds must be fully invested before 5th April 2023 in order to utilise carry-back relief.

Portfolio Diversification – We have 6 investee companies available for investment and for income tax relief carry back purposes before the tax year end.

Final date for investment – The final date for investment for the current tax year into our Growth EIS Fund is 31st March 2023.

Track Record – Investors to date, have achieved an average 3x ROI (excluding any tax reliefs) and a 36.8% IRR with an average holding period of 4.5 years.  This is in line with the Fund’s target of 2-3x ROI (excluding any tax reliefs) and well ahead of the target 25% IRR.

Investment Strategy – Post revenue (£1m+ annualised), EIS qualifying, Growth Stage UK based technology enabled companies across a number of sectors.

What is the Enterprise Investment Scheme (EIS)?

Set up in 1994, the EIS is a well-established UK government scheme offering generous tax reliefs to investors in small growth companies. EIS is designed to help smaller companies raise finance by offering a range of tax reliefs to investors who purchase new shares in qualifying companies.

Income tax relief at 30%

You will receive 30% tax relief on the amount invested in EIS qualifying companies against your income tax bill for the year of investment, up to a maximum of £2 million invested (provided that any amount above £1m is invested in Knowledge Intensive Companies). In addition, if you want to treat some or all of the shares subscribed for in the current tax year as though they were subscribed for in the previous tax year, then you may do so up to a further £1 million (reduced by any EIS investments already made in that tax year).

Capital Gains Tax (CGT) Deferral

CGT, such as from the sale of shares or a second property, can be deferred for the life of the EIS investment. You can defer any gains made in the three years prior to, or the year following, the date your subscription is invested into EIS companies.  There is no limit to the amount of gains that can be deferred for CGT purposes.

100% Inheritance Tax Exemption

The companies in which we invest also qualify for Business Property Relief. This means that investments made through the Committed Capital EIS Portfolio Service can be exempt from inheritance tax (IHT) after just two years (from the point at which the investment into the underlying EIS company is made). In order to qualify, the investments must also be held at the time of death.

Tax Free Growth

All capital gains made from EIS investments are tax free (when held for the minimum 3 year holding period). Given the higher returns targeted by the Committed Capital EIS Portfolio Service, this is an important tax benefit, allowing investors to include smaller companies in their investment portfolio in a highly tax efficient manner.

Loss Relief

At the current rates of income tax, up to 45% loss relief may be available on any holdings that are realised at a loss net of initial income tax relief, helping to offset the effect of any assets which underperform in the overall portfolio. For a 45% taxpayer this would provide total tax relief of 61.5%.  The investor can choose whether to set the loss relief against other gains made now or in the future, or against income for the year in which the loss arises or the previous year.

9 March 2023