The scheme works by offering tax relief for investors buying new shares in the business. The incentives are as follows:
- Investors can claim 30% of their investment back for income tax relief. For example, if an investor bought shares for £20,000, they would be able to claim back £6,000 from income tax.
- If an investor sells the shares after having owned them for over three years, they will be exempt from capital gains tax.
- If an investor has owned the shares for over 2 years, the shares will not be subject to inheritance tax.
- If an investor makes a loss on their investment, they can also offset this against income tax. For example, if an investor pays 45% income tax, they can get 45% of investment loss back. Therefore, if an investment of £10,000 reduces to £5,000, an investor in this tax bracket will be able to claim £2,250 off their income tax.