What is crowdfunding? Crowdfunding tax benefits
While investing in equity crowdfunding initiatives can be risky business, there are some tax benefits available to investors who help small, early-stage companies raise the finances they need.
Businesses which qualify for tax benefits are clearly labelled on crowdfunding websites Crowdcube or Seedrs.
Go further: If you've got questions about tax, or other aspects of your finances, speak to a member of our Money Helpline team by signing up to Which? for £1 for one month.
Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) aims to boost investment in small start-ups by offering income tax relief on the shares that you purchased through a crowdfunding website. It works like this:
- You can claim income tax relief at 50% of the cost of shares, to a £100,000 maximum.
- So if you invest £10,000 in SEIS shares, you could get income tax relief of £5,000
- You must hold the shares for three years to qualify.
- If your shares are sold before this period, or the start-up breaches rules, the tax relief can be reduced or withdrawn.
- Should you make a gain by selling your shares in the first three years, half your returns, to a maximum of £100,000, are free from capital gains tax - as long as you reinvest in more SEIS-eligible shares.
- If you sell your shares in an SEIS-qualifying company after three years, any returns are free from capital gains tax.
Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme (EIS), which is for investors in smaller, higher-risk trading companies, offers 30% income tax relief on a maximum investment up to £1m.
Like SEIS-qualifying investments, the shares need to be held for at least three years to qualify for the benefit and then capital gains tax relief also applies.
Investors in both SEIS or EIS qualifying businesses that go bust can offset any losses against income.
Claims for tax relief must be submitted as part of a self-assessment tax return. Even if you don’t invest in an EIS or SEIS qualifying business you’ll need to declare any earnings, including bonus payments.
Go further: Self-assessment tax returns - find out how to fill out your return with our guide.
- Which? tax calculator - let us help you work out how much you owe
- 30 ways to save tax - money-saving tips
- Call the Which? Money Helpline - if you've got any questions about tax or investments
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