Finance Bill 2023 – EIIS Tax Relief Change Detail
The Finance Bill 2023 published on 19 October 2023 outlines changes to investor tax relief which will will depend on the categorisation of the funding round within the company, generally classified as initial, expansion, or follow-on.
It specifies a 50% tax relief rate for “initial risk finance” where companies that have not previously operated in any market (section 496(5)(a)(i) of part 16 of the TCA).
A 35% rate applies for “initial risk finance”, where a company which is within 7 years of first commercial sale/10 years of incorporation, (section 496(5)(a)(ii) of part 16 of the TCA).
A 20% rate applies to “expansion risk finance” , which shall only be a qualifying investment where, based on a business plan prepared in view of a new economic activity (section 496(6)of part 16 of the TCA).
A 20% rate also applies to “follow-on risk finance”, where the possibility of the follow-on risk finance investment was provided for in the business plan upon which the initial risk finance or expansion risk finance investment was based (section 496(7) of part 16 of the TCA).
Q. What does this mean for the BVP 2023 EII Fund?
A. The BVP EII Fund targeted tax relief will be approx. 35%* (previously 40% in prior years) due to the EIIS changes in the 2023 Finance Bill.
*Assumes 80% of investments are made in companies pursuant to section 496(5)(a)(ii) (“initial risk finance”) and 20% of investments are made in companies pursuant to section 496(6)(“expansion risk finance”) or section 496(7) (“follow on risk finance”).