ENTERPRISE INVESTMENT SCHEME (EIS)
The Enterprise Investment Scheme is designed to help smaller, high risk companies raise finance by offering tax relief on new shares in those companies that qualify. It offers investors a very tax-efficient way to invest in smaller companies.
- 30% income Tax Relief – Income tax relief at a rate of 30% is available to investors in an EIS. Where an investment of e.g. £10,000 is made then a taxpayer may deduct £3,000 from any Income Tax liability in the year of investment or the preceding year if appropriate. There is no minimum EIS investment.
- EIS Maximum – A maximum of £1 million per year can be invested in EIS investments by an individual.
- Married Couples – EIS allowances are allocated individually; therefore a married couple can invest up to a maximum of £2m each tax year and be eligible for income tax relief.
- Qualifying Period – An EIS investment must be held and remain EIS qualifying for 3 years from the date of issue to retain the tax concessions.
- Capital Gains Tax Exemption – After 3 years any gains are CGT free as long as Income Tax relief was claimed at the outset.
- Loss Relief – If the shares are disposed of at a loss, then loss relief is also available. Any loss, less the Income Tax relief claimed at outset, can be set against any Income Tax liability in the year of disposal or the preceding year if appropriate.
- CGT Deferral – Payment of CGT on previous investments can be deferred when the gains realised are reinvested into an EIS qualifying investment. The EIS investment must be made one year before or three years after the gain arose.
- Carry Back – The “Carry Back” facility allows all or part of the cost of the EIS investment acquired in one tax year to be treated as if the investment had been made in the preceding year. Tax relief is then given against the Income Tax liability of that preceding year rather than against the current tax year of the EIS investment. The “Carry Back” is subject to the limit of EIS relief for each year.
- Maximum Company Investment – If an individual or their direct relatives hold shares in a company that represent in total 30% or more of the issued share capital, they become a “Connected Individual” and EIS is not available. Direct relatives include spouse, children, grandchildren, parents and grandparents. However they exclude siblings.
- Connected Individuals – Individuals connected with a Company are not eligible for EIS reliefs on any investment in that company. These include employees but not “Business Angels”.For most Income Tax payers the risks of investing in an EIS investment are generally mitigated by the available tax reliefs against Income Tax. However an investor may suffer the opportunity costs of missing out on positive returns on an alternative investment.
For further EIS information please refer to the HMRC website at:
The above is a summary of the benefits and conditions of an EIS investment and potential investors are recommended to seek advice from their financial adviser.
EIS Promoters & Examples
There are a number of authorised EIS promoters and some of the more notable ones that we work with are listed below:
Ober Private Clients
Many of these typically focus on specific types of companies and investments. This will reflect on their respective areas of industry expertise.
Some EIS promoters also offer a portfolio or “Fund” of qualifying investments to give broader diversification and to reduce investment risk across the whole portfolio.
EIS Company Conditions
- The company’s gross assets must not exceed £15 million immediately before the shares are issued and £16 million immediately afterwards.
- The company must not be a 51% subsidiary of another company.
- The company must not have any subsidiaries that are not at least 51% owned.
- The investee company must not have more than 250 full-time employees.