EARLY-STAGE businesses, venture capitalists and entrepreneurs were among the biggest beneficiaries of George Osborne’s recent “open for business” Budget.

Enterprise Investment Scheme (EIS) relief incentivises investors to back higher-risk companies by reducing the investor’s income tax liability by a proportion of the money invested.

By immediately raising EIS income tax relief from 20% to 30%, the Chancellor hopes to increase investment into smaller companies that carry out research and development into new ideas and products that can eventually be taken to market or sold on to larger organisations.

The Chancellor will also relax various thresholds and qualification criteria for EIS investment.

From April 6, 2012, the annual investment limit by an individual under the EIS will rise from £500,000 to £1m and the annual maximum amount that can be invested in a company under the scheme will increase from £2m to £10m.

There is also good news for companies that were previously seen as too large for the EIS. At present only companies with fewer than 50 employees and £7m of gross assets qualify for investment under the scheme but from April 6, 2012, these limits will increase to 250 employees and £15m of gross assets.

This is all positive news to those entrepreneurs wanting to grow their business, but what about those who want to sell?

Entrepreneurs must pay capital gains tax (CGT) on the proceeds of the sale of their business.

When it was introduced in 2008, Entrepreneur’s Relief provided that a rate of 10% of CGT was payable when a qualifying company was sold and where the shareholder is an employee or director of the company and has held 5% of the voting shares for more than 12 months prior to the disposal.

However, this 10% rate of relief was initially restricted to a lifetime limit of £2m of capital gains. The limit was increased in last year’s Emergency Budget to £5m so it was a surprise to many that this year’s Budget has doubled the lifetime allowance for entrepreneurs to £10m.

There was disappointment in some quarters that the 5% shareholding threshold was not lowered as it still excludes many employees who have been given shares in the company.

:: Craig Swinhoe is in the corporate finance team at Muckle, Newcastle