Enterprise Investment Scheme (EIS) is a government scheme to attract investment into smaller companies. Income tax relief is available at 30% on investments of up to £1 million per year, or £2 million where at least £1 million is invested in knowledge-intensive companies. The main benefits of EIS are:
- The investor receives a deduction from their annual tax bill equal to a maximum of 30% of their investment.
- The investor is permitted to defer a capital gain on any disposal of an asset where the gain is invested in EIS shares within the specified period (one year before and three years after the gain arises).
- No Capital Gains Tax is payable on ultimate disposal of the shares.
- In the event that the company fails, tax relief is available usually as income tax relief in respect of the investment to the extent that tax relief has not already been given.
It is therefore a considerable advantage to an investor, to invest using EIS, because it is convenient for cash flow as regards the initial tax relief, and effectively reduces the risk associated with the investment.
SEIS (Seed Enterprise Investment Scheme) is available for start-up companies in their first three years of trading. This is even more attractive than EIS because it offers 50% income tax relief on investments of up to £200,000 per year, and 50% of a qualifying capital gain reinvested into SEIS shares can be exempt from Capital Gains Tax, subject to the relevant conditions.
In order to qualify for these schemes, a company must meet several criteria. Among other things, the investor must not be connected with the company, the company must be a trading company, and the company must not be a subsidiary of another company. This is not a full list of all the criteria, and there are also specific rules relating to the type of shares invested, however none of these rules are especially onerous.
We have a specialist team dealing with EIS and SEIS applications, and we will be delighted to assist you. To find out more, call us on +44 (0)330 024 3200 and talk to one of our experts.