Jenson Seed EIS Fund - Clubfinance

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40 Jenson Seed EIS FundTax Reliefs 416. Tax ReliefsThe Fund takes advantage of somesignificant tax incentives available forinvestors in SEIS Qualifying Companies andEIS Qualifying Companies. These tax benefitshave the effect of greatly increasingthe return and reducing the risk of yourContribution. This Information Memorandumsets out the tax benefits applicable to boththe SEIS and EIS schemes in turn.The figures in this section are examplesonly. They are not, and should not beconstrued as, forecasts or projections ofthe likely performance of the investmentdescribed in this document. Please notethat this is only a condensed summary ofthe taxation legislation and should not beconstrued as constituting advice which apotential Investor should obtain from his/herown investment or taxation adviser beforeapplying for an investment in the Fund. Thevalue of any tax reliefs will depend on theindividual circumstances of Investors.6.1 SEIS Tax ReliefsA summary of the SEIS Tax Reliefs is as follows:Scenario 1 Scenario 2 Scenario 3 Scenario 4Investment Amount £10,000 £10,000 £10,000 £10,000Tax Incentive 1:Income Tax Reliefat 50%£5,000 £5,000 £5,000 £5,000Net cost to Investor £5,000 £5,000 £5,000 £5,000Tax Incentive 2:Capital gains taxwipeout relief at 28%£2,800 n/a (£2,800) n/aNet cost to Investor £2,200 £5,000 £2,200 £5,000Exit Realisation £20,000 £20,000 n/a n/aTax Incentive 3: Taxfree capital gainsTax Incentive 4:Inheritance tax relief£ - £ - n/a n/a£ - £ - n/a n/aTax Incentive 5:Loss relief at 45%n/a n/a (£2,250) (£2,250)NET GAIN/(LOSS)TO INVESTOR£17,800 £15,000 £50 (£2,750)Gain/(loss)percentage on netcost809% 300% n/a n/aGain/(loss)percentage onInvestment amountn/a n/a 0.1% (27.5%)Illustrative examples
42 Jenson Seed EIS FundTax Reliefs 43Tax incentive 1: SEIS Income Tax ReliefUnder Part 5A of the Income Tax Act 2007,as introduced by the Finance Act 2012,you receive income tax relief at 50% of theamount of your SEIS Qualifying Investmentmade through the Fund. This offers thepotential for significant enhancement ofyour investment returns over time, althoughit is always subject to an annual £100,000investment limit.Claims for SEIS income tax relief are givenby setting off against an individual’s incometax liability in the tax year in which the SEISQualifying Investment is made, a sum equalto the full amount subscribed for Sharesin the SEIS Qualifying Company multipliedby 50%, the rate of SEIS Relief for 2012/13,irrespective of your marginal tax rate(although your income tax bill must exceedthe relief you claim).ExampleMr Smith is a 50% taxpayer earning £150,000a year. He is looking at ways to reducehis income tax bill and decides to invest£100,000 in SEIS Qualifying Investmentsthrough the Jenson Seed EIS Fund. As such,he is entitled to £50,000 of income tax reliefin the tax year in which his SEIS QualifyingInvestments are made. The effective netcost to Mr Smith of the SEIS QualifyingInvestments made through the Jenson SeedEIS Fund is therefore, £50,000.Tax Incentive 2: Capital gains wipeout ongains made during the tax year 2012/2013Where you have made a gain on thedisposal of assets during the tax year2012/13 and you use the proceeds of thisgain to make a SEIS Qualifying Investmentthrough the Jenson Seed EIS Fund, the gainsyou have made will not be chargeablegains for the purposes of capital gains taxprovided that you are entitled to SEIS Reliefon your Investments.ExampleMr Smith is a 50% taxpayer earning £150,000a year. In 2012/13 Mr Smith sells shares ina biotech company and makes a gain of£100,000 which is subject to capital gainstax of 28%. If he uses his £100,000 gain tomake a SEIS Qualifying Investment throughthe Jenson SEIS Fund and claims SEIS Reliefand also makes a claim for capital gainstax wipeout relief, Mr Smith does not haveto pay the £28,000 that he would otherwisehave had to pay in capital gains tax.Taking into account the initial 50% income taxrelief, Mr Smith would, in effect, be making a£100,000 investment for a sum of £22,000.Tax Incentive 3: Tax free capital gainsWhen SEIS Qualifying Investments are sold,you will enjoy tax free capital gains on anyincrease in their value.ExampleThe following table shows the net gain madeon a SEIS investment where the investmenthas grown by a gross amount of 15 per cent:Note: the above calculation assumes that theannual exemption from capital gains tax (“CGT”),which is currently £10,600, is utilised elsewhere.This example is for illustrative purposes onlyand should not be relied on to predictactual returns.SEIS InvestmentInitial investment £100,000 £100,000Income tax relief (£50,000) -Net cost £50,000 £100,000Proceeds £115,000 £115,000Gross gain (assumes 15 per cent) £65,000 £15,000CGT (currently 28 per cent) - (£4,200)Net gain £65,000 £10,800Excluding SEIS tax benefits
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