The Government has tabled a further series of amendments to the Finance Bill 2020 ahead of its report stage this week.
A new clause (number 22) has been added to seek to help preserve Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) relief in cases where an individual, who previously invested in a company under the EIS, subsequently provides funding to that company by way of a convertible loan agreement under the Future Fund.
The Government’s Future Fund, announced by the Chancellor in April 2020, has been set up with an objective to provide funding for companies facing financial difficulties due to the coronavirus outbreak. The Future Fund investment will be in the form of a loan that can either be redeemed or converted into shares and requires private investors to provide match funding under the same terms. The fund is intended to make investments in new, innovative companies that may be unable to access other COVID-19 business support programmes because they are either pre-revenue or pre-profit. As part of the development of the Future Fund design, stakeholders identified that the nature of the Future Fund’s CLN investment instrument could mean that SEIS and EIS investors in a company may lose their reliefs depending on how and when the loan ends.
The amendments mean that SEIS and EIS income tax relief will not be withdrawn where the investor receives “value” as a direct result of Future Fund convertible loan, including any interest payment and when it is repaid or converted.
However, the draft clause in the Finance Bill 2020 falls short of addressing other concerns. For example an investor could lose their relief if the Future Fund loan causes that investor to be entitled to more than 30% of the company’s assets on a winding up. The ‘independent investor requirement’ could mean that the investor may not be able to obtain EIS relief for further investments in the Company after the loan is converted.
SEIS/EIS businesses considering applying for the Future Fund are recommended to take SEIS/EIS tax advice where appropriate.
For further details of all new clauses and explanatory notes in relation to the Finance Bill 2020 please see https://www.gov.uk/government/publications/finance-bill-2020-report-stage
