A tax lawyer with more than 15 years of tax experience, having worked for City law firms and a Big Four accountancy practice.
This sounds like an attractive idea at first, but after thinking about this I am not so sure.
The key issue to my mind is whether the pre-dilution gain is significant enough to be worth electing for the 10% rate.
One should bear in mind that the purpose of raising funds may be to grow the business to the stage where it will attract buyers. If the bulk of the gain comes from the post-dilution period, after the business attracts new equity, then that part of the gain which attracts ER may only be a relatively small amount of the overall tax liability.
It will probably depend on what stage of the business cycle the company's at.
For those who are interested, this is an outline of my understanding of how the scheme was intended to work.
1. Scottish trusts sell to Irish trusts - not directly but by way of option arrangements.
2. Because the two sets of trusts were connected, a direct sale would be fixed at market value, bringing in the big CGT charge.
3. So instead, the sale went though by way of options being granted and exercised. At the time of these events, the market value rule would have been disapplied by TCGA 1992 s 144ZA;
4. The result was that the Scottish trusts would have been subject to CGT by reference to the actual price paid - which was minimal since the sale was at an undervalue;
5. But under Irish law, the Irish trusts would have been treated as having acquired the shares at market value;
6. Therefore the subsequent sale of the shares to Merrill Lynch - at market value - would have been tax free.
The case is here if anyone wants to read it all:
Looks like another type of EIS share
Just skimming through the rules for IR in FB 2016 Schedule 14.
Some of these rules look awfully like the same conditions for EIS. Such as the rules restricting investors from receiving value (i.e. getting an early return on their investment) - there are rules for working out how much the value is in monetary terms - all using the same words and phrases as in the EIS legislation.
So to answer Rebecca's original question: "Maybe we didn't need a new relief if it was going to be similar to the existing EIS reliefs - especially if it's going to be just as complicated".
That said, Entrepreneurs' Relief and the new Investors relief aren't subject to State Aid as EIS is. So there doesn't need to be the same level of restrictions on fund raising and how the company can employ the money as with the EU rules.
This relief seems to be directed at business angels
My first impression is that this relief seems to be a safety net for EIS gone wrong. Note the same three year holding period.
I remember previously when we had taper relief, we would often advise EIS clients that if they lost EIS, at least they might have the comfort of the 10% taper rate. Though it's no comfort in having to pay back any EIS income tax relief. But at least all was not lost.
Taper relief for unquoted companies didn't require the company to be a personal holding company - the size of the stake didn't matter, and you didn't have to be an office holder. But then they abolished taper relief and replaced it with ER - where these things do matter. And so it took away the safety net.
Now we seem to have it back again in the form of ER Investor Relief. I wonder how much of this has been influenced by the recent changes to EIS as a result of EU rules. EIS and all the other schemes get more and more complicated each year, that one wouldn't be surprised if the rules are putting off angel investment.
So perhaps the answer is not another relief - but making the existing EIS et al simpler. (Wishful thinking).
Apprenticeship levy isn't quite a new tax...!
There used to be stamp duty payable on apprenticeships once upon a time. Introduced in 1710, not long after stamp duty was first invented in 1694.
Was abolished along with lots of other "funny" articles like stamp duty on charterparties, hats, gloves, newspapers...but now it seems to have come back to life again!
Rebecca , yes that was my interpretation
The higher rates won't apply, but corporates/funds will still pay the standard rates.
Though it looks confusing when in the next passage they talk about the consultation asking whether those with funds with more than 15 properties should be exempt from the higher rates. I suspect that this latter question is aimed more at closely held private companies/funds rather than the institutionals with a wide investor base.
SDLT is currently payable within 30 days, but...
they are looking to consult on a shorter filing period of 14 days!
Institutional corporates/funds unlikely to be affected
The consultation is aimed at small/private fund type vehicles. If you look at the words immediately before the mention of the consultation process:
"The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property given the role of this investment in supporting the government’s housing agenda."
There were a lot of reforms to the REIT rules in 2012, specifically to encourage more REITs to invest in residential. After all that, it would be surprising if these types of corporate/funds vehicles would have to stump up the additional SDLT. Especially after having abolished the entry charge on becoming a REIT.
Shortened SDLT and CGT filing dates also to hit buy to let
Don't forget these.
1. On the way in - SDLT filing and payment to be shortened from 30 days to 14;
2. On the way out - CGT payment on account within 30 days.
But corporates and funds engaging in property investment not to be affected. Funds such as REITs and authorised funds, investment trusts don't pay CGT anyway.
There are a number of residential REITs coming on the market recently. So maybe the answer to those who were keen to buy to let is to do it via a fund.
Restrictions on two levels for partnerships
There are two levels of restriction:
1. When the partnership borrows to fund the purchase - the interest is disallowed/restricted. It doesn't count because it is interest to finance a property;
2. When an individual partner borrows to fund his partnership contribution. This is distinct from 1 - and could have been used to get round the new rules, but the legislation doesn't allow it.