EIS Tax relief - do I qualify?

[hiriskpaul]

Not sure if this is the right board or whether I should be using the tax board, but will post a link.

My daughter is invovled in a company that is undergoing fund raising and the company will qualify for EIS (not SEIS). A venture capital company is putting in £500k and following this the company will be valued at £4m. At this point my daughter will own slightly under 29% of the shares. I would like to put in some money as well but am cognisant of the connected persons rules that may prevent me from obtaining EIS relief, according to the guidance page here:

https://www.gov.uk/guidance/venture-cap ... -investors

Prior to the raise my daughter will hold more than 30% of the shares, so does that meant that if I put money in at the same time as the venture capital company I will not qualify for EIS relief?

If I put money in after the VC company have been issued their shares and my daughter diluted to below 30%, will I then qualify for EIS or will the HMRC see this as all part of the same funding round?

If I can put money in post VC, how much can I put in? ie if the amount I put in raises the total of my daughter's shares and mine back above 30%, would I be unable to claim EIS relief?

Any pointers on this would be very welcome.

[Spet0789]

Not sure if this is the right board or whether I should be using the tax board, but will post a link.

My daughter is invovled in a company that is undergoing fund raising and the company will qualify for EIS (not SEIS). A venture capital company is putting in £500k and following this the company will be valued at £4m. At this point my daughter will own slightly under 29% of the shares. I would like to put in some money as well but am cognisant of the connected persons rules that may prevent me from obtaining EIS relief, according to the guidance page here:

https://www.gov.uk/guidance/venture-cap ... -investors

Prior to the raise my daughter will hold more than 30% of the shares, so does that meant that if I put money in at the same time as the venture capital company I will not qualify for EIS relief?

If I put money in after the VC company have been issued their shares and my daughter diluted to below 30%, will I then qualify for EIS or will the HMRC see this as all part of the same funding round?

If I can put money in post VC, how much can I put in? ie if the amount I put in raises the total of my daughter's shares and mine back above 30%, would I be unable to claim EIS relief?

Any pointers on this would be very welcome.

Rather than read the summary, for this I think you need to read the source regulations.

As you say the critical questions are whether (i) the 30% threshold is the sum of holdings and (ii) the timing of the determination.

Try here. DYOR or consult a lawyer.

https://www.gov.uk/hmrc-internal-manual ... l/vcm11050

[eisman]

In response to your queries:

Prior to the raise my daughter will hold more than 30% of the shares, so does that meant that if I put money in at the same time as the venture capital company I will not qualify for EIS relief?

Unfortunately, in these circumstances you will not qualify for EIS relief. As an 'associate' of your daughter, the fact that she owns over 30% immediately prior to the VCT share issue means you cannot qualify.

If I put money in after the VC company have been issued their shares and my daughter diluted to below 30%, will I then qualify for EIS or will the HMRC see this as all part of the same funding round?

You would have to wait until at least 2 years after the share issue causing her holding to fall below 30%. The 30% limit covers the period of two years prior to a particular share issue and the three years thereafter.

If I can put money in post VC, how much can I put in? ie if the amount I put in raises the total of my daughter's shares and mine back above 30%, would I be unable to claim EIS relief?

To qualify for EIS relief, you would only be able to invest an amount that kept your combined holdings at no more than 30%.

Note that the definition of 'associate' for EIS purposes does not include brothers or sisters. If you have other children, could they perhaps invest instead of you?

You would need to check whether and, if so, when the VC company would allow further investment that dilutes their holding.

Eisman

[hiriskpaul]

In response to your queries:

Prior to the raise my daughter will hold more than 30% of the shares, so does that meant that if I put money in at the same time as the venture capital company I will not qualify for EIS relief?

Unfortunately, in these circumstances you will not qualify for EIS relief. As an 'associate' of your daughter, the fact that she owns over 30% immediately prior to the VCT share issue means you cannot qualify.

If I put money in after the VC company have been issued their shares and my daughter diluted to below 30%, will I then qualify for EIS or will the HMRC see this as all part of the same funding round?

You would have to wait until at least 2 years after the share issue causing her holding to fall below 30%. The 30% limit covers the period of two years prior to a particular share issue and the three years thereafter.

If I can put money in post VC, how much can I put in? ie if the amount I put in raises the total of my daughter's shares and mine back above 30%, would I be unable to claim EIS relief?

To qualify for EIS relief, you would only be able to invest an amount that kept your combined holdings at no more than 30%.

Note that the definition of 'associate' for EIS purposes does not include brothers or sisters. If you have other children, could they perhaps invest instead of you?

You would need to check whether and, if so, when the VC company would allow further investment that dilutes their holding.

Eisman

Thanks, that is very helpful. The VC company has agreed up to £250k of angel investment money immediately following their investment and on the same terms. They will easily raise this without us, but unfortunately it does look like we would not qualify for tax relief due to the 30% rule. The sibling option is interesting though, or we might just put in a smaller amount of money and forgo the tax relief.

I don't really understand the purpose of this restriction. Why do parents who take a risk not qualify for EIS relief on the same terms as other investors?