There are tax advantages for investors in unlisted
small companies, including PLUS-quoted and AIM, but,
as in any investing, the golden rule is that you should
consider the investment case first. If you lose every
penny of your investment, tax relief will be scant
compensation.
In the next few paragraphs, I will explain the main
tax options. See also the website of HM Revenue &
Customs (www.hmrc.gov.uk).
The Enterprise Investment Scheme
Under the Enterprise Investment scheme (EIS), some
unlisted small companies offer you 20 per cent income
tax relief for up to £400,000 a year (2006–7)
invested in new ordinary shares, and capital gains
tax exemption. You can defer unlimited capital gains
tax arising from disposal of other assets by reinvesting
your gains in EIS companies. This tax is deferred
until the shares are sold. You may obtain income tax
relief by way of election for capital losses suffered.
To qualify for the tax reliefs on EIS shares, you
must hold them and meet the qualifying conditions
for three years. You must be unconnected with the
company in which you plan to invest, and it must be
UK-based, unquoted, and carrying on a qualifying business,
or intended to do so. Barred activities include financing,
law, property investment, hotels, gardening and farming.
Inheritance Tax Exemption
Once you have held unquoted shares for two years,
they are exempt from inheritance tax.
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