The Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme is a scheme which encourages individuals to invest in certain higher risk companies by giving generous tax reliefs on the amount invested. In summary, those benefits are:
- Income tax relief for the investor of up to 30% of the amount invested to a maximum of £1m investments (for example, invest £500,000 and save £150,000 in income tax)
- Disposals of EIS shares after three years may be totally free from CGT
- Capital gains deferral relief allows investors disposing of any asset to defer gains against subscriptions in EIS shares
- Losses on EIS shares may be offset against taxable income
- EIS investments should qualify for IHT business property relief after two years’ ownership
Given the generosity of these reliefs, it should come as no surprise to learn there are various conditions that must be met in order to secure them. These include tight legal definitions regarding exactly what the terms ‘qualifying company’, ‘qualifying investor’, ‘relevant shares’, etc all mean.
The relief can easily be withdrawn and taxes can be clawed back if these terms are not well understood and any of the conditions for the relief cease to be satisfied.
It is possible to apply for EIS advance clearance and we usually prepare and submit the application at the same time as carrying out a review of whether the conditions are met.
Initial clearance is given on a provisional basis, but after four months trading, it is possible to submit a further application to HMRC and request them to issue forms EIS3s which enable investors to claim their tax relief.
For information on The Seed Enterprise Investment Scheme (SEIS) and a table summarising the differences between EIS and SEIS please follow the link The Seed Enterprise Investment Scheme (SEIS).
Remember, there are very stringent conditions associated with both EIS & SEIS reliefs so any advice you act on should be given by a very experienced tax practitioner and implementation should be supervised by the same.
Please call us today on 0114 266 4432 to discuss your requirements.
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