SEIS, EIS, ISA - a quick guide to investment acronyms
Given the longer or complex names of various investment-related terms, it's inevitable acronyms are used. For many, it's often to the extent that the acronym becomes more popular than the phrase itself.
As with all acronyms, if you're using them daily, understanding them is easy - but if you're new to the world of investing, knowing your EIS from your BPR can be more than a little complex!
And so in this post, we wanted to produce a quick, simple and straightforward reference point for a variety of acronyms we use on a daily basis.
SEIS - Seed Enterprise Investment Scheme
This tax relief, offered to individual investors, was put in place to help small, early-stage companies raise equity finance, attracting investors to their offering with up to 64% tax relief. The shares must be held for three years to qualify for the tax relief and in addition to the reliefs, any profit made upon the disposal of the shares is tax exempt, too.
SEIS can be applied on the first £150,000 worth of share capital a company raises, but this must be completed within three years of a business commencing trading.
EIS - Enterprise Investment Scheme
The EIS is the SEIS's older sister and is designed to assist slightly more established companies to attract investors to their early growth capital rounds. This tax relief - of up to 30% - has the same restrictions as SEIS in the way the shares must be held for three years, but any profits are tax exempt.
The idea of EIS is that a business will use SEIS for their proof of concept round or seed round, and EIS will then be used for their seed or super seed round.
Again, the EIS eligibility has an expiry date and a business must use it within two years of the subscription.
ISA - Individual Savings Account
ISAs are different to conventional savings accounts, largely because the interest on cash or capital gains from investments is completely tax free.
As of July 2017, there are seven different types of ISA:
- Cash ISA
- Stocks & Shares ISA
- Innovative Finance ISA
- Lifetime ISA
- Help To Buy ISA
- Junior ISA
- Flexible ISA
Each having their own purpose (which we've detailed in our tax efficient guide to investing), an individual can put money into one of each kind each tax year, with the 2017-2018 tax year limit being £20,000 across all accounts (i.e., £2,250 could be invested into four ISAs and £11,000 in one - subject to individual product limits that apply to Lifetime ISAs and Help to Buy ISAs - giving a total investment of £20,000).
BPR - Business Property Relief
A type of tax relief, BPR was originally established in 1976 to prevent family businesses having to be sold to settle Inheritance Tax bills. BPR offers Inheritance Tax relief at either 50% or 100% on the transferring of suitable business assets.
At the higher end of the relief, this would generally consist of running, or having a financial interest in, a business. At the lower end, it often relates to land, buildings, machinery or plant equipment that's used only (or primarily) for business activities.
IHT - Inheritance Tax
When an individual passes away, tax needs to be paid on a percentage of their estate (i.e., the value of any property they own, money in the bank, etc). This is called Inheritance Tax.
The amount of Inheritance Tax the individual needs to pay is dependent on various characteristics, but most notably the value of their estate. Currently, the standard rate is 40%, and this is paid on all amounts above £325,000 (or £425,000 if the estate includes a home that is passed to direct descendants).
CGT - Capital Gains Tax
Relateing to the tax you're required to pay on the increase in value of certain assets you've bought and subsequently sold, there is currently a tax free amount of £11,300 (and £5,650 for trusts). Above this level, you will pay CGT at a rate depending on your annual income (earnings and capital gains combined) and on the nature of the asset.
There are various exemptions from CGT, but conversely, CGT isn't exclusive to simply selling an asset - it applies however you may dispose of it (gifting it or swapping it are two other examples).
VCT - Venture Capital Trust
A Venture Capital Trust is effectively a company, listed on the London Stock Exchange, that invests in other companies. Introduced over two decades ago in 1995, they've proven to be one of the most tax efficient investment opportunities currently available.
VCTs are required to invest a minimum of 70% of their value in companies that are either privately owned or listed on the LSE Alternative Investment Market (AIM).
This focus on early-stage companies is similar to investments in EIS-eligible and SEIS-eligible companies, but the key difference is VCTs manage these investments on your behalf. This provides you with built-in diversification (but does also incur a charge).
With dozens upon dozens of investment related acronyms, these are just some of the most notable. Feel there should be some added to the list, or want to understand more about a certain acronym? Let us know.