The Enterprise Investment Scheme (EIS) was launched in 1994 to encourage investment into small unquoted companies in the UK. Investment in small UK companies that are not on a quoted stock exchange usually have lack of liquidity and higher investment risk. The tax reliefs available via the EIS are intended to mitigate some of those investment risks.
30% Upfront Income Tax Relief
Investors can claim 30% income tax relief on the amount they invest (providing they have a sufficient income tax liability), therefore, if you invest £100,000 you can save £30,000 income tax. You must hold the investment for 3 years to ensure the income tax relief is not reclaimed.
Capital Gains Tax Deferral
Investors can defer the capital gains tax on any asset by investing the gain into an EIS qualifying investment. You can potentially defer the capital gains tax indefinitely.
Capital Gains Tax Free Growth
All gains accrued on your EIS investment will be free of capital gains tax, provided the investment has been held for at least 3 years and income tax relief has been claimed.
If shares in the EIS investment are disposed of at a loss you can claim loss relief on the amount invested. This means that for a 45% taxpayer the most exposure to the EIS investment will be 38.5p for every £1 invested.
EIS Inheritance Tax Relief
Once your EIS shares have been held for 2 years you can claim 100% inheritance tax relief thereby reducing or eliminating your inheritance tax liability by the value of the shares.
Tax rules and regulations are subject to change and depend on personal circumstances.
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
If you are interested in learning more about how to protect yourself, visit the FCA’s website here.