It was recently reported that not only do SMEs make up 99.9% of private sector businesses and 60% of private sector jobs, they also employ 16.5 million people and contribute £1.8 trillion to the national wealth. These statistics demonstrate just how important the SME Economy is in providing investors with growth opportunities.

Reasons to invest in a growth company vary from investor to investor; whether it’s because you have a passion for a product or service, you wish to support an experienced and proven management team, or perhaps it’s the attraction of potential high returns and tax incentives. Whatever your reason may be, NEX Exchange provides you with the opportunity to invest in a range of growth companies from a variety of sectors. 

In addition, investors in companies quoted on the NEX Exchange Growth Market can benefit from an array of tax benefits designed to help fuel investment in smaller firms. Eligible incentives can include relief under the Enterprise Investment Scheme, Inheritance Tax relief and reliefs from capital gains tax. And all stocks on a Growth Market are exempt from stamp duty, unlike a Main Market listing.

Here’s a brief overview of the potential tax reliefs for investors on the NEX Growth Exchange and some of the main conditions attached:

• Invest in a Stocks and Shares ISA –current maximum per year is £20,000. No Capital Gains tax, and no tax on dividends earned on shares held in an ISA regardless of the length those eligible shares have been held in the ISA.

• Invest in an Enterprise Investment Scheme (EIS) – tax relief of 30% on investments up to £1 million can be claimed by investors who buy new shares in a company. If these shares are held for 3 years, any sale profits are normally exempt from Capital Gains tax. Relief for losses can also be claimed at an equivalent rate to the highest income tax rate you pay.

• Under EIS, you can defer your Capital Gains Tax if you use a gain to buy shares in NEX Exchange Growth Market companies which have been approved for EIS.

• Venture Capital Trusts (VCTs) – investment funds which back SMEs have 30% tax relief for investors who invest up to £200,000/year and hold the shares for a minimum of five years. Assuming the £200,000 threshold is not exceeded, dividends are free of Income tax, and the sale of VCT shares is free of Capital Gains tax.

• Seed Enterprise Investment Scheme (SEIS) – SEIS may be available to companies with no more than25 employees and no more than £200,000 in gross assets, amongst other criteria. Income tax relief is 50% on investments up to £100,000 annually.

• Inheritance Tax – investments in unquoted trading companies (including those of NEX Exchange Growth market) can attract 100% Inheritance Tax relief. There are of course various other conditions to satisfy and professional advice is recommended.

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