Clause 56 - SEIS: re-investment relief

Part of Finance Bill – in a Public Bill Committee am 10:45 am ar 11 Mehefin 2013.

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Photo of David Gauke David Gauke The Exchequer Secretary 10:45, 11 Mehefin 2013

Clause 56 provides for a limited extension of the capital gains tax holiday component of the seed enterprise investment scheme. The change will help to ensure that the momentum the scheme has built up during the past year continues and that more investors take advantage of the tax reliefs, and put their money into young, start-up companies.

As we have heard, SEIS was introduced by the Government last year to provide vital financing support for start-up companies. The scheme is proving to be successful. It has received nearly 2,000 expressions of interest from companies seeking to have official assurance that they can use it. On top of the headline 50% income tax relief, the scheme was introduced with a one-year capital gains tax holiday to give it a kick-start and to build interest, and it is that element that will be extended under the clause.

The Government are keen to maintain the momentum—I gave some figures a moment ago—and continue to channel more funding into start-up companies. We are therefore extending the CGT holiday under the clause at a limited rate for another year to gains realised in 2013-14. We regard that as a sensible approach. It means that investors making capital gains in 2013-14 will receive a 50% capital gains tax relief when they reinvest those gains into seed companies in either 2013-14 or 2014-15.

I was asked why we are not continuing the 100% holiday. The CGT holiday was always set out as a temporary measure to kick-start the scheme and create a buzz—that is not a technical tax word. The scheme has worked well and it is picking up some real momentum and interest.

It is also fair to say that we recognise that a full CGT exemption allowed some investors, albeit in fairly unusual circumstances, to benefit from more than 100% tax relief. That could have been damaging to the scheme’s reputation in the long term. We therefore believe that a 50% CGT relief in the second year of the scheme strikes a good balance by offering support to a relatively new scheme without providing over-generous tax incentives. As we are now more than a year on in the life of SEIS and given that awareness increases over time, not least because of the excellent activities of my hon. Friend the Member for Braintree and the efforts of Lord Young, we consider a 50% rate of CGT for the second year strikes the right balance.

In conclusion, the clause provides a limited extension to the capital gains tax holiday component of SEIS. The changes will continue to help momentum in investment in SEIS, thereby ensuring more investment in young, innovative start-up companies, and I hope that the clause will be accepted.