Drink for free at your local!


No doubt many readers’ New Year’s resolutions may include becoming more actively involved within their local communities.


Andrew Vickery, Associate Director, Rural Services, Exeter


One idea that increasing numbers of rural residents are considering is taking over a failing local pub or village shop to stop that facility being lost to the local area.


While such a venture is never undertaken lightly, many of us will know of instances where a struggling pub or shop has been turned around by fresh input from management or staff and it is often the local residents who are most keen to retain those services as a hub in their local community.


2011 could see an increase in the numbers of such ventures if one private members’ bill which is currently going through Parliament is brought into force. The Protection of Local Services (Planning) Bill, would enable local planning authorities to require planning permission prior to the demolition or change of use of premises or land used or formerly used to provide a local service, including pubs or local shops.


Anyone considering contributing to such a venture should consider whether it could be appropriate to structure the business as an Enterprise Investment Scheme (EIS) company to gain access to some extremely valuable tax breaks. The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies, providing those shares are held for the qualifying period which is normally three years. The available tax reliefs are:


 Income Tax – 20% Income Tax rebate on the investment made. A £10,000 investment would therefore qualify for a tax rebate of £2,000.


– Any loss on the value of the shares when disposed of is an allowable deduction against Income Tax, less the initial 20% tax rebate received.


 Capital Gains Tax – An EIS investment can be used to defer a CGT liability


– If the value of the EIS shares rises, they can be sold free of Capital Gains after the qualifying period


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 Inheritance Tax – After two years the shares qualify for 100% Business Property Relief against Inheritance Tax meaning that they are not chargeable for IHT if still held on the investor’s death


HMRC sets strict qualifying criteria for EIS investments, the key points of which are as follows:


The trade Most trades qualify, but some trades are excluded, including: – Farming or Market Gardening – Property development – Commercial forestry – Providing services primarily to those whose trade consists of excluded activities, thus excluding business such as agricultural contractors


 The company cannot raise more than £2m from EIS investments in any 12 month period


 The company must have less than 50 full time (or equivalent) staff


While changes to the Government’s planning policy may lead to an increase in these types of community-led investments, the reform of Agricultural Subsidies in the next couple of years is likely to give a further boost by moving a greater proportion of overall spending away from the Single Payment Scheme in favour of Agri-Environmental schemes (such as HLS and ELS) as well as Rural Development projects.


Although this is potentially bad news for farmers there may be the opportunity to turn the changes to your advantage by tapping into some of the increased Rural Development funding. A community venture which is part funded by the RPA with the remainder potentially qualifying for some healthy tax reliefs could be an attractive proposition.


Remember also that it is not just community projects such as shops and pubs that qualify. Most trading businesses could potentially be included subject to the qualifying criteria and other examples within the Rural sector could include farm shops, many tourism ventures and renewable energy investments such as wind farms and photo-voltaic projects.


EIS is a complex area but there are substantial benefits of being able to use the scheme. If you are considering any such projects please feel free to contact us to see if you could benefit from the reliefs available.


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