HM Revenue and Customs (HMRC) approve a number of the companies we represent. The Enterprise Investment Scheme (EIS) is designed to help smaller trading companies to raise finance by offering a range of tax reliefs to investors who purchase shares in those companies.

We will not support a company purely for the fact that it has Enterprise Investment Scheme (EIS) status. The company must first be fundamentally sound and offer a realistic chance of strong returns. That said, the EIS offers investors an extremely tax efficient investment proposition.

Our experience of investing in private companies through an Enterprise Investment Scheme has been exceptionally positive. The tax benefits available through the EIS can be used by most investors and include income tax relief, capital gains tax deferral and or exemption, inheritance tax relief and should the worse happen, loss relief.

Benefits to tax payers

  • 30% immediate tax refund on investment by way of income tax relief
  • Ability to carry back income tax relief one year
  • No Capital Gains Tax on gains on the sale if the business succeeds – as long at the company is held for 3 years
  • Tax relief allows investors to set off any losses against their earnings if the business is unsuccessful
  • No inheritance tax after 2 years
  • Previous Capital Gains can be invested in an EIS scheme (and the capital gains tax payable can be deferred)

Income Tax Relief:

This is available to individuals who subscribe for shares in an Enterprise Investment Scheme (EIS). Relief is at 30 per cent of the cost of the shares, to be set against the individual’s Income Tax liability for the tax year in which the investment was made.

Relief can be claimed up to a maximum of £1,000,000 invested in such shares, giving a maximum tax reduction in any one year of £300,000 providing you have sufficient Income Tax liability to cover it. So a husband and wife could claim relief on subscriptions totaling £2mln.

There is a ‘carry back’ facility, which allows the all, or part of the cost of shares acquired in one tax year, to be treated as though those shares had been acquired in the preceding tax year. Relief is then given against the Income Tax liability of that preceding year rather than against the tax year in which those shares were acquired. This is subject to the overriding limit for relief for each year.

Capital Gains Tax deferral relief:

The payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS qualifying company. The gain can arise from the disposal of any kind of asset, but the investment must be made within the period one year before or three years after the gain arose.

There are no minimum or maximum amounts for deferral.

There is no minimum period for which the shares must be held; the deferred capital gain is brought back into charge whenever the shares are disposed of, or are deemed to have been disposed of under the EIS legislation.

Capital Gains Tax exemption:

If the investor has received Income Tax relief on the cost of the shares, and the shares are disposed of after three years, any gain is free from Capital Gains Tax.

Inheritance Tax:

EIS schemes are useful for IHT planning, as investments in EISs fall out of your estate after only two years.

Loss relief:

If a loss is made on the disposal of the EIS shares at any time, that loss may be offset against either the investor’s income or capital gains in the year of disposal.