Rate of relief
For investments made before 6 April 2011, the rate of income tax relief is 20% of the cost of the shares. For example, the income tax relief on an investment of £10,000 would be £2,000.
For investments made after 6 April 2011, the rate of income tax relief is 30% of the cost of the shares. For example, the income tax relief on an investment of £10,000 would be £3,000.
To be eligible for the relief, the investor must be a UK resident and pay income tax in the UK. Remember, it’s a tax relief; so the investor must be paying income tax to claim it
The annual tax relief limit is £300,000 which means currently an investment of up to £1,000,000 is possible per year.
When & how investors receive their relief
Depending on both the timing of the investment and the claim for relief, income tax relief will be received either through:
- a rebate from HMRC (“Scenario 1“); or
- off-set against future income tax (“Scenario 2“).
Where the claim is made in one tax year for an investment in a previous tax year, the investor will receive a rebate. E.g. Investment made in tax year 2010/2011 + claim for relief made in tax year 2011/2012 = rebate
Where the claim is made in the same tax year as the investment, the tax relief will be off-set against income tax to be paid in that year. E.g. Investment made in tax year 2013/2014 + claim for relief made in tax year 2013/2014 = off-set.
Investors generally prefer a rebate, so note that even in scenario 2, it is possible to request that the relief is applied to the preceding year. The rules allow for a one year “carry back”.
The “carry back” could be used to split the tax relief across the two years for another reason: where the individual hasn’t paid enough income tax in one year to use the full 20% or 30% relief.
Deadline to claim income tax relief
The investor has between 5 and 6 years to claim the relief. To work out the deadline, take the date of the investment, fast forward to 31 January and add 5 years. For example, relief on an investment made in June 2009 could be made any time before 31 January 2015.
See how the rules for claiming income tax relief under the Seed Enterprise Investment Scheme compare.