What is EIS?
Similar to the Seed Enterprise Investment Scheme (SEIS), the Enterprise Investment Scheme (EIS) supports small companies by helping them attract investors and secure funding in exchange for shares in the company and tax relief from HMRC. Unlike SEIS, EIS is aimed at more established higher-risk companies rather than start-ups.
How much funding can a company receive?
The maximum a single investor can put into a company within any given tax year is £1,000,000.
What tax relief is available to the investor?
- Income tax relief – 30% income tax relief can be claimed on investments of up to £1,000,000 in one tax year, equating to £300,000 (providing there is enough income tax liability to cover this amount).
- Capital Gains Tax (CGT) Exemption – Any profit made from shares of the company is exempt from CGT so long as the shares have been held for at least three years and income tax relief was claimed on them. The shares can be held for longer than three years and therefore could potentially allow the investor to accrue their CGT exemption over a longer period of time.
- Loss relief – Should the investment on shares not be profitable, the investor can elect for the amount of the loss, minus the income tax relief given, to be set against income in the year in which the shares were sold, or on income on the previous year instead – which may be a more attractive option than setting it against any capital gains tax.
- CGT deferral relief – Where an investor incurs CGT on selling an asset, this can be deferred if the profit made from the sale is invested in an EIS qualifying company. In order to defer CGT, shares of the EIS company must have been subscribed to either one year before the sale of the asset, or within 3 years after the sale of asset.
How do I set up EIS?
As of 2018, the government are now getting stricter with EIS applications. Find out about the changes and how you should prepare you claim in our article 2018 changes to EIS and SEIS.