The Enterprise Investment Scheme – an alternative source of finance for businesses during challenging times?
Back in 1994, the government set up the Enterprise Investment Scheme (EIS) to encourage wealthy individuals to invest in small, young, unquoted UK companies by offering generous tax reliefs to investors.
As always, there are many stringent conditions that both the unquoted company and the individual investor will need to adhere to but if you are prepared to take the risk to help green shoots grow, the following tax reliefs may be available to you:
- Income Tax relief of up to 30% of the amount invested with the opportunity to relate some back to the previous tax year
- No Capital Gains Tax liability if the EIS shares are sold at a gain after three years
- Further Income Tax Relief if the EIS shares are sold at a loss
- The ability to defer Capital Gains Tax payable on the disposal of any other asset by re-investing the proceeds into subscribing for EIS shares
- No Inheritance Tax liability on the value of the EIS shares by virtue of Business Property Relief being available after 2 years of ownership
The success of the EIS scheme has led to the introduction of the Seed Enterprise Investment Scheme (SEIS) which promotes investments in even earlier-stage (and therefore riskier) companies through even greater tax reliefs.
The actual tax relief due will depend on an individual's circumstances and may change in the future. In addition, the availability of tax relief depends on the company, and investors, maintaining their qualifying status.
We can help you understand the various tax reliefs available and ensure these are best managed to maximise the tax breaks available – call one of our private client advisers on 01223 810100 for friendly help and support.
Stringent conditions to satisfy
Investors can claim EIS relief on up to £1m-worth of investments in qualifying companies per person per year (this cap rises to £2m if you're investing in knowledge-intensive businesses, such as those in the life sciences sector).
Even better, the scheme's carry back feature means you can apply your EIS-eligible investments to the preceding tax year.