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TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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SEIS investment:I am a start up company eligible !

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SEIS investment:I am a start up company eligible for SEIS! i have an investor waiting to invest with a current tax bill of £3 million and will increase every year. my question is the tax year ends april 4th 2016, if he invests £100,000 before then he is eligible for 50% tax relief for this year on the £100,000, if he invests £50,000 after april 4th he will therefore be eligible for the 50% reduction on the £50,000 as it is a new tax year is this correct? As total investment allowed is £150,000.Further more if he is to loose out on the investment what is the total tax relief he is eligible to be awarded on the initial £150,000 investment?
Customer: replied 2 years ago.
(Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Hi. The UK tax year runs from 6 April to 5 April. It doesn't end on 4 April. Take a look here for some guidance on SEIS. An investment in 2015/16 can be relieved at 50% in 2015/16 or 2014/15 if a claim to backdate it is made. The maximum investment that can be relieved inn any one tax year is £100,000. I see no problem with a £100,000 being invested in 2015/16 and a further £50,000 being invested in 2016/17. Tax relief will be give at 50% so long as the investor has paid sufficient tax. I hope this helps but let me know if you have any further questions.
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Customer: replied 2 years ago.
what about the further relief on capital gain tax? please could you explain this to me i understand the tax releif there is further relief available if the capital is lost . Loss relief it is known as please could you give an example with the figures i have given to you
I will call at 1.20pm to explain. Can you give me a number to call please.
Customer: replied 2 years ago.
could you please write it for me so i can understand easier i did not want the phone service? could we cancel the phone service
You can write off up to 50% of a capital gain made in the year for which you are eligible for income tax relief. Take a look here for more information:
I will cancel the phone call if I can.
If you had a gain of £100,000, you could write off £50,000 of the gain in addition to getting the 50% income tax relief.
Customer: replied 2 years ago.
no im confused ok so if he invests 150k over two years he is eligible for 75 tax relief from his taxim on about loss relief how does this work if he invests 150k over two years and the investment failed how does he get loss relief? how is this worked out do you under stand what i mean?
If the income tax relief claim is backdated one tax year, then so must the claim for CGT relief. So, the gain that you want to write off must have been made in the earlier tax year.
Yes. I'm drafting a reply.
Customer: replied 2 years ago.
ok so for the loss relief correct me if im wrong it can only be written off against any capital gain in the tax year the tax relief was used in correct?
See example 2 here:
The loss is restricted to the cost of the shares less the income tax relief. If the company failed, a claim would need to be made under the negligible value rules.
Customer: replied 2 years ago.
just to add im slightly confused ok so i understand tax relief upto 150ki still dont understand loss releif if money is lost in the investment and we go bust the invested company?
In answer to your question:
The loss may occur long in the future. That is when you claim the loss.
You are confusing capital gains relief and loss relief.
In addition to the 50% income tax relief you can write off 50% of a gain that you make on an asset such as a property sale or other shares.
If the SEIS shares are sold at a loss later on, you claim the loss as a capital loss when it is incurred.
You would claim the capital loss against gains or income when the loss is deemed to have occurred which could be well into the future.
I have to go to a meeting now. I will get back to you to answer any further questions on my return.
I will get the call fee refunded to you.
Customer: replied 2 years ago.
Could you please explain loss relief in the seis scheme I don't understand loss relief
If you make a loss when you sell the share or if the company goes bust, you calculate the capital loss as shown in the examples here and here. As it says here and here, you can then claim tax relief for the loss against capital gains or income.
Customer: replied 2 years ago.
so alongside the initial 50% tax relief the loss relief is added on top of the 50% reduction already so more relief is available
Customer: replied 2 years ago.
to make this easier could you work it out for me if i give you the scenario is that possible please it saves time and hassle? i would greatly appreciate this...
You are still confusing the initial income tax and capital gains tax reliefs for the investment with loss relief. Tax relief is what you get for the initial investment. The initial reliefs are NOT loss relief. Loss relief is what you get when you SELL the shares at a LOSS or the company goes bust and the shares are WORTHLESS. What is it that you want to know?
Customer: replied 2 years ago.
ok this is the question is we answer this then we are all cleari have on investor we are in negotiation!
investment will be given £100,000 before april 5th this year so a tax relief of £50,000 is given to him
Second investment will be given after april 5th so in next tax year which is £50,000 so relief of £25,000 is total money at risk is £75,000he will have 25 shares out of 100.if the company goes bust or he loses money on the shares how much from the initital £75,000 cash he has at stake will be losthope this makes sense
His capital loss will be £75,000. He will have invested £150,000. The personal income tax saving will be £75,000 (50%) so the net cost of the shares will be £75,000. If the company goes bust and he gets nothing for the shares, he will have incurred a capital loss of £75,000. Take a look at the examples here.
Customer: replied 2 years ago.
i see the example so when there is a loss relief where does he claim releif for this off is it capital or income tax?
You claim one or the other, whichever is most advantageous or is actually available. If you have no gains, you can't get CGT relief. If you have no income, you can't get income tax relief. CGT is charged at 28% for a higher rate taxpayer, so a 40% or a 45% taxpayer would obviously claim income tax relief at 40% or 45% for the capital loss instead of CGT relieff at 28%.
If a 40% taxpayer claimed income tax relief on the £75,000 capital loss, the net cost of his initial £150,000 investment will be £45,000. For a 45% taxpayer,the net cost of his initial £150,000 investment will be £41,250.
Customer: replied 2 years ago.
so okplease tell me if im correctthe 100,000 investment the initital 50% relief is from the investors tax bill correctthe loss relief also come from his tax bill or from some where else?
Both come off his tax bill, where else?
Customer: replied 2 years ago.
ok that sounds perfect i think i understand now!
Customer: replied 2 years ago.
can you get both tax relief and cut so 50% tax releif 28% CGT?
The first example here gives you the answer to that and I did allude to that many posts ago.
Customer: replied 2 years ago.
ok finally to finish off! this issuei understand now the tax relief and loss relieftax relief is claimed against his tax earnings
loss relief is that also claimed against his tax earnings or a different type of tax like capital gains taxit is only the loss relief please explain what he claims the loss relief against.....
Loss relief is claimed against income or capital gains.
Customer: replied 2 years ago.
If he has a 3 million tax bill he is more likely paying 45% tax
Then he would claim relief any loss against income as opposed to capital gains where the relief is a maximum of 28%.
Customer: replied 2 years ago.
so is this situation correct if i propose this deal to my investor• Total investment £150,000
• Tax relief of £75,000
• Total amount of money at risk is £75,000• First £100,000 given before 4th April 2016
• Second £50,000 given after April 6th 2016Total Cash investment of £75,000!If investment is lost and Levaro goes bankrupt or you make a loss!• Initial investment £150,000, tax relief of £75,000 so cash amount at stake is £75,000
• Depending on your tax rate whether it is 40% or 45% additional relief is available
• 40% tax rate- loss relief- £45,000 lost from initial £150,000
• 45% tax rate- £41,250 lost from initial £150,000Total money loss (2):• £45,000 (40% tax payer)
• £41,250 (45% tax payer)
• IF NEED BE WE CAN PAY £25,000 BACK TO YOU which is left over from the initial investment IF WE LOOSE MONEY SO A TOTAL LOSS WOULD BECOME:
• (1) 40% TAX PAYER £20,000
• (2) 45% TAX PAYER £17,250
Frankly, the investor should be taking independent advice. I cannot believe that someone facing a tax bill of £3 million doesn't have an accountant who can advise him on this. Everything is find up to the point where you say " IF NEED BE WE CAN PAY £25,000 BACK TO YOU which is left over from the initial investment IF WE LOOSE MONEY SO A TOTAL LOSS WOULD BECOME:!. That may put the tax relief at risk from the start. The tax reliefs are high because the risk is high. Paying something back is like the investor having his cake and eating it.
Customer: replied 2 years ago.
This is so I understand he has his own advice I know but I need to make sure I know everything myselfBut can I not pay him back as a separate deal if we loose money like a guarantorWhat happens to money in a company if we go bust and say if we have money left over who takes that?
I understand. You might have a private deal but if HMRC get wind of it, all the tax reliefs will be at risk. A liquidator will take over a company that goes bust and distribute any money left over in accordance with the law. Creditors get paid before shareholders.
Customer: replied 2 years ago.
Say if we have 10,000 reserve in a company just stored away and we go bust or before we go bust can I not take that out of the company
I'm not a corporate lawyer and I really don't want to get into this as it is a different topic from SEIS but if you started emptying a company bank account just before it goes under, you risk being disqualified as a director.
Customer: replied 2 years ago.
Ok I understandSo the only thing your saying is not correct is giving him money back apart from that everything I said is correct?
Paying money back would jeopardise the tax reliefs. Apart from that, everything is correct.
Customer: replied 2 years ago.
ok another question! what if my parents take a loan of £100,000 would they be entitled to tax relief they only pay 20% tax so how would that chnage the equation for tax relief
Where would your parents be taking a loan from? What would the loan be used for?
Customer: replied 2 years ago.
Secured loan against the house, use all the money to invest in my start up company
Customer: replied 2 years ago.
Which is seis approved
Assuming it was done through SEIS and the company meets the criteria it should qualify but the tax relief will be limited to how much tax each of your parents pays assuming the investment is split between them.
Customer: replied 2 years ago.
The initial tax relief is 50% right? If they only pay 20% tax the further loss relief is only 20% than?
You can only get loss tax relief at your top rate of tax. If you don't pay 40% or 45% tax, HMRC aren't going to subsidise the difference.
Customer: replied 2 years ago.
Ok but everyone gets the initial 50% correct?
I'm afraid not. See the second example here (James). You have to have paid or have a tax liability equal to or greater than the tax relief itself. Again, HMRC won't subsidise a shortfall.
Customer: replied 2 years ago.
So you have to be paying 40-45% tax relief in the first place? Also the relief you want to claim has to be present in one tax year to claim it from correct?
You can split the relief over two tax years.
The tax relief you get will never exceed the tax you pay or are due to pay for the year the investment or part of the investment is relieved against.
Customer: replied 2 years ago.
Please explain how it can be spread over two years
You simply choose how much of the investment you have made that you want to be treated as having been made in the previous tax year and complete the form SEIS3 accordingly. Take a look at the bottom of page 2 and the top of page 3 here.
Customer: replied 2 years ago.
Can my parents take a loan out give the money to a friend who has a tax bill of 500 give them the money for them to invest can they claim it back and give it to my parents or is that not valid
Customer: replied 2 years ago.
Tax bill of 50,000 sorry
I wouldn't think that HMRC would be happy about that. It's not that far from being an attempt to get tax relief fraudulently in my opinion, though I'm not a lawyer.
Customer: replied 2 years ago.
That's fineFinally if my parents invest only 10 000 can they get 5000 tax relief they are only 20% tax payers and have a 5000 tax bill
That would work.
Customer: replied 2 years ago.
Ok I see