Leading adviser sends out wake-up call on tax-efficient business angel investing

Faced with major economic challenges, the Government has backed growth in new jobs and business as a key driver for recovery. The measures are more than words – there are significant improvements to already generous tax breaks for private investors who support young companies. “We think these tax breaks now make it compelling for individuals to take note and better understand how they can take advantage of the opportunities available,” said Scott Haughton, Founder Director of Envestors.

An angel investment in a qualifying company can benefit from:

  • 50 per cent income tax relief upon investment;
  • No capital gains tax (‘CGT’) where a gain is realised and invested in the same tax year;
  • Setting off any losses against earnings if the business is unsuccessful (i.e. tax relief at 50 per cent for those on the highest marginal rate);
  • No Inheritance Tax after two years; and
  • Previous capital gains can be invested (and CGT payable can be deferred).

For backers of successful businesses under the Seed Enterprise Investment Scheme (‘SEIS’), gains are entirely free of CGT – so for a 50 per cent taxpayer, 25 per cent of capital at risk for gains which are entirely free from CGT of 28 per cent.

Envestors is highlighting the advantages to coincide with the publication of the latest edition of its Guide to Investing as a Business Angel.

Business angels invest their money, and often time, into start-up or early-stage businesses in the hope that the success and growth of the business will dramatically increase the value of their equity stake, as well as providing a valuable tax shelter.

Most seek very high growth – but the considerable potential upside is balanced by the danger of losing their entire share should a business fail.

“Many are aware of angel investing, but most do not fully understand the processes involved,” said Haughton. “There are misconceptions such as ‘they are wealthy and invest big sums of money’. In fact average angel investment amounts are around £25,000 with investment levels starting as low as £10,000.”

One misconception is that all investments in young companies are high-risk and likely to result in capital loss. Of investments made by Envestors’ network of individuals, family offices and venture capital, on average 16 per cent fail to return any capital, against a market average of 56 per cent

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