The startups that DMG Syndicate Members invest in have all been eligible for EIS relief. And long may this continue - EIS is a UK Government scheme and we’ve seen how much of a positive impact it has had on the UK startup and angel investing ecosystem over the years. But what does that mean for angel investors? What are the pro’s and con’s here?
If you have UK income tax you can benefit (even if you don’t live here)
Under the Enterprise Investment Scheme (EIS) angel investors can gain both income tax and capital gains tax relief when they invest in startup companies that qualify. The initial income tax relief is 30% therefore a £10,000 investment is effectively a net outlay of £7,000.
To be benefit under EIS, angel investors must be investing as an individual but do not need to be a UK resident. They must, however, have UK income tax liability against which to set the relief. The angel investor can make the subscription through a nominee (the DMG Syndicate operates with a nominee structure).
Angel investors must check that both themselves and the company qualify for EIS. Companies can only raise certain amount under the scheme from certain people and entities (e.g. employees and VC funds cannot claim EIS).
What about if a startup exits?
Under current rules there would be no Capital Gains Tax (CGT) charged on any gain of EIS shares that are sold after the minimum 3 year holding period.
What if the startup fails?
If EIS shares are disposed of at a loss at any time, the loss (after any Income Tax relief has been taken into account) can be offset against income for that year and the previous year. There is a maximum exposure of 38.5p in the pound for a 45% income tax payer.
How is the tax relief claimed?
Angel investors can include details of the investment in the self-assessment return to HMRC. HMRC doesn’t always require angel investors to send the EIS certificates with the self-assessment, however you might be asked you to produce the certificates and therefore should keep them safe.
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The main points above are for the typical DMG Syndicate investor. Further details can be found on the HM Government website, here, or if you have any questions about the DMG Syndicate please email Matthew.
Please note: the information and any commentary contained in this article is for general information purposes only and does not constitute legal, tax, finance or any other type of professional advice. Dot Matrix Group Ltd does not accept and, to the extent permitted by law, excludes liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this article.