Nick Blundell

Written by: Nick Blundell

Nick Blundell

Partner

Could a new tax relief encourage corporate investors?

  • April 2018
  • 2 minutes

Last week the Office for Tax Simplification (OTS) published a paper on ‘Simplifying the taxation of key events in the life of a business’ from start-up, incorporation, finance, succession through to disposal. It states, ‘the complex patchwork of tax charges and reliefs which apply at various points in the business lifecycle needs an overhaul to reduce complexity, make reliefs more accessible and to encourage UK businesses to fulfil their potential.’

The OTS identifies issues with the current administrative processes, how the varying reliefs (such as SEIS, EIS, VCT, ER, Gift Relief, BPR and Investor Relief) interact, how they can create some unintended disincentives and the problems this creates for businesses and investors. 

With most of these reliefs designed to support investment and business growth, it’s important that they work properly and are understood so they fulfil their objectives - particularly at a time when the country is facing uncertainty over Brexit.

Furthermore, companies can often fall foul of the rules because they don’t understand all the legislative complexities of these reliefs. This can make naturally high-risk investments become even more risky when the potential to lose the tax benefit is factored in. 

This highlights the need for businesses to have access to good advisors who can help them through all the technical detail to ensure reliefs are maximised and the right decisions are made at the right time.

The report also identifies that there are currently no tax reliefs for corporate investors at the point of investment, which it notes has ‘virtually shut down this potential source of venture capital’. 

Although the Substantial Shareholding Exemption, which can allow corporate investors to make tax free disposals, has recently been relaxed, it’s too soon to tell whether this will encourage any more investment.

While introducing a new relief for corporates doesn’t exactly simplify the current system, it could open another much-needed source of capital. Corporates may also be able to offer more than just cash investment; existing companies could also have the infrastructure and expertise that these businesses really need during their key life events. 

While businesses and investors are likely to welcome improvements to the current maze of reliefs, any alteration to the existing legislation will need to be considered carefully as changes intended to simplify the tax system can often lead to unforeseen and unfavourable outcomes for some and even more complexity for all.

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