EIS & SEIS Schemes
For sophisticated investors contemplating investment opportunities, Enterprise Investment Scheme (EIS) qualifying investments provide an appealing alternative due to the many tax reliefs available.
Investing in Enterprise Investment Schemes is encouraged by UK Government to raise funds for a greater number of small businesses, and this is reflected in the attractive rates of tax relief on offer. However, the nature of EIS i.e. investing into small, often fledgling, companies can mean that such propositions are accompanied by a larger exposure to risk. Rigorous due diligence is key to managing this risk.
Key Points for Investors
Income Tax Relief – 30% upfront Income Tax relief. There are no exclusions to this tax break and it can also be spread across the current and previous year’s income tax bill. This is called a “carry-back” and it allows the investor to use any surplus income tax relief for the previous year if the current year’s income tax is reduced to zero;
Capital Gains Tax (CGT) Deferral – an investor can defer capital gains realised on a different asset, where disposal of that asset was less than 12 months before the EIS investment or less than 36 months after it. This relief is limited to the amount being invested into the EIS and can be claimed by investors whose interest in the company does not exceed 30%. Where gains arise on the EIS investment, taper relief is available;
CGT Reinvestment Relief - No CGT to pay on any gains made when the investment is realised after three years (five years for investments made before 6 April 2000), provided the EIS initial income tax relief was given and not withdrawn on those shares;
Loss Relief – if EIS shares are disposed of at any time at a loss, such loss can be set against the investor’s capital gains or income in the year of disposal,
Inheritance Tax Relief – shares do not form part of the estate for Inheritance Tax purposes, provided the investments have been held for at least 2 years at time of death and the company qualifies for Business Property Relief (“BPR”).
Maximum subscription is currently £1,000,000 per investor per year, yielding a potential reduction in tax liability of £300,000 per annum (assuming the investor has sufficient income tax liability
Seed Enterprise Investment Scheme (SEIS)
SEIS targets seed and start up companies for companies that are less than two years old for investments of up to £150,000, capping the maximum that can be invested in any tax year at £100,000. The investor benefits from all of the above tax breaks, with the exception that – as the scheme focuses on higher risk start-up investments – the initial relief is 50%. If you are interested in investing in this vehicle, contact us today for our latest prospectus of EIS & SEIS assured companies in our portfolio.
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