Highgate Tech Fund

30% Up Front Tax Relief. Individuals may claim back up to 30% relief against income tax on EIS investments up to a maximum of £500,000 each per tax year, equating to an actual cost of £7,000 for each £10,000 of investment.  20% up front tax relief is allowed to be carried back to the previous tax year for offset against income tax i.e. a theoretical £1m could be invested of which £500,000 could be carried back to the last tax year. With increasing higher rates of income tax to as much as 50% and perhaps more in future, together with significant restrictions on pensions contributions and benefits, this opportunity is increasingly attractive for tax planning. Shares must be held for a minimum of 3 years from the date they are issued to the Investor for this relief to be available.

No Capital Gains Tax.   Provided the shares are held for a minimum of 3 years, there is no CGT due on the proceeds. However, the shares can be held for much longer, to realise the investment potential, thus continuing sheltering gains from CGT. Whilst the Fund intends to provide an exit to investors through the appropriate mechanism for each investee company, this relief should enable investors to shelter substantial capital gains.

Unlimited CGT Deferral Relief is also available (over and above £500,000 income tax relief) allowing CGT liability dating back 3 years or forward 1 year, to be deferred indefinitely at the relevant rate applicable at the time of the original gain i.e. 28%, 40% or 18%. As well as indefinite deferral, there is also the potential for the liability to be reduced by other tax allowances over a period of time such as timing disposals in order to utilise annual CGT allowances and inter-spousal transfers to maximise tax efficiency.

Inheritance Tax has been dubbed the ‘optional tax’ and individuals today are exposed to potential IHT bills at 40%, largely because of relatively high property prices. However, high earners are potentially more exposed. After two years from the investment date, EIS qualifying companies generally fall outside the estate for IHT purposes, potentially allowing considerable assets to be preserved 100% intact for dependants, without the current 40% IHT tax liability.

Loss Relief applies where there is a demonstrable crystallisation of loss which can be offset against either income tax (in the current or previous tax year) or against capital gains. In the case of a 50% income tax payer with a total loss, a £10,000 investment would have already received £3,000 of income tax relief, leaving £7,000 to be offset against income tax resulting in a maximum exposure of £3,500 i.e. 35 pence in the pound. Offsetting against CGT in the same situation at a 28% liability band, results in an exposure in the order of 50 pence in the pound.

Losses can also be offset against CGT at the prevailing rate, currently 28% in either the current tax year or subsequent tax years. In this case, the maximum exposure would be in the order of 50.4%.

Important Note:

The above is intended to highlight some of the uses of the EIS but tax issues depend on individual circumstances and no liability is accepted for the deployment of the information above, which is for illustrative purposes only.  EIS investments, particularly those in embryonic companies, carry a high degree of risk and should be carefully assessed when making investment recommendations.  This information sheet is for investment professionals only.