Crowdfunding and Tax – What you need to know

Produced by Buzzacott LLP, this brief guide to tax in equity and debt investments is a useful read for any investor unsure of his / her tax obligations.

Will I pay tax on my investment income and gains?

The tax implications will depend on the investor’s personal circumstances, but generally speaking unless the investment qualifies for one of the government approved shcemes such as the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS), investors will pay income tax and Capital Gains Tax (CGT) at their marginal rate on all income and gains realised.

Is tax relief available for losses on loans?

Unlike with equity investments, investors who make a loss on their loans will not always be eligible for tax relief on the loss.

Where tax relief is available for losses on loans, the loss may be offset against other capital gains of the same or future years in a similar way to losses on shares. It is not possible to use these losses against income. It is worth reiterating, however, that in many cases the loans will not meet the necessary conditions and as a result investors will not be entitled to tax relief.

Is tax relief available for losses generated on equity investments?

Equity investors who sell their shares at a loss can offset that loss (less any income tax relief already given under the EIS or SEIS) against other capital gains generated in the current or future years. In some circumstances, it will also be possible to use these losses against income tax but this will depend on the nature of the investment. Income tax reliefs are also capped to the greater of £50,000 or 25% of the taxpayer’s income, so the type and quantum of relief available to equity investors will depend on their personal circumstances.

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