Everyone knows what’s meant by a low risk investment.\u00a0 It’s one where there’s minimal risk of losing any part of your stake.\u00a0 You want safe? – government bonds, National Savings, bank and building society deposits up to \u00a382K.\u00a0 You won’t lose your initial stake, but in the current climate you will most certainly lose value. \u00a0 With the likes of Halifax paying 0.11% on deposits over \u00a325K, and inflation running at around 3%, “safe” has taken on a new meaning – you can sit back and relax as your savings “safely” whittle away to nought.<\/p>\n
Probably the last thing anyone would categorise as “safe” is investment in\u00a0early-stage start-up business.\u00a0 You’re almost guaranteed to lose the lot.<\/strong><\/p>\n Or are you?<\/strong><\/p>\n For the “right” investor the extraordinary tax breaks available this\u00a0tax year ensure that whatever you lose on your investment under the Seed Enterprise Investment Scheme [SEIS]\u00a0will be more than compensated by the tax savings it offers.<\/p>\n It’s important to understand what’s meant by “right”.\u00a0 First, it’s a taxpayer\u00a0who’s made\u00a0a capital gain this year on which tax will be payable. Second, that taxpayer has to have a sufficient income tax liability this year to cover the upfront tax relief SEIS offers.\u00a0 Third, in the event the investment does what you expect – fail – in the year of failure the taxpayer should\u00a0be exposed to a sufficient level of income tax at the maximum rate to have it mitigated by the availability of loss relief.<\/p>\n An example:\u00a0 Joe has made a capital gain on the sale of a second home of, say, \u00a370K.\u00a0 Because he’s a higher rate tax payer, the CGT bill comes to \u00a316.8K.\u00a0 He will have earned \u00a390Kin the year, on which he’ll be suffering \u00a326K of income tax.\u00a0 Because SEIS investments qualify for a 50% income tax relief, he invests \u00a352K in a SEIS business – precisely to ensure he wipes out his income tax liability\u00a0.\u00a0 His tax bill on \u00a352K of his gain vanishes, as does his income tax bill.\u00a0 So his \u00a352K investment will actually cost \u00a311.4K.<\/p>\n Joe’s anticipating a significant uplift in his income profile over the next couple of years, such that he’ll be exposed to something over \u00a350K of tax at the highest rate of 45%.\u00a0When the investment he’s made does what we all expect, and becomes worthless, he gets income tax relief on his loss.\u00a0 For income tax purposes his loss is the initial \u00a352K less the income tax relief he received at the time of \u00a326K – a loss of \u00a326K.\u00a0 He gets tax relief at 45% on that loss, equals \u00a311.7K.<\/p>\n So a high risk investment that cost \u00a311.4K goes sour – leaving him \u00a3300 better off.<\/strong><\/p>\n And of course, there’s always the possibility, however remote, that his investment doesn’t do what we expect, and becomes the next Facebook.<\/p>\n Rather changes the\u00a0concept of what constitutes a low risk investment.<\/p>\n But this only works for investments made this side of 5th April – so time is running out ……….<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Everyone knows what’s meant by a low risk investment.\u00a0 It’s one where there’s minimal risk of losing any part of your stake.\u00a0 You want safe? – government bonds, National Savings, bank and building society deposits up to \u00a382K.\u00a0 You won’t lose your initial stake, but in the current climate you will most certainly lose value.[…] <\/p>\n