Enterprise Investment Schemes - (EIS)
Enterprise Investment Schemes are a relatively new type of investment introduced by the Government to encourage investment into smaller companies in need of additional finance as start-up capital or to expand the business.
As these companies tend to be relatively small and start-ups, these investments are in a higher risk bracket than ordinary investments into equities.
To encourage investment into these companies, major tax incentives and benefits were introduced with the investments. The Enterprise Investment Scheme offers a different and complementary set of tax breaks to those offered by VCTs particularly. The EIS scheme is now the only UK tax efficient scheme to offer Capital Gains Tax ("CGT") Deferral. The scheme also offers income tax relief at 30% (for the SEIS scheme - 50%), capital gains free growth and, through Business Property Relief, relief from Inheritance Tax ("IHT") if the shares are held for more than two years. *
Tax changes effective from 6 April 2014 onwards
There are two schemes which you can use to achieve tax relief for investing in small unquoted companies: the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). The 2014 Budget announced that the SEIS scheme has been made permanent, and that the capital gains tax reinvestment tax relief has also become a permanent feature of the scheme. The tax relief given under each scheme is:
- Rate of income tax relief: SEIS = 50%; EIS = 30%
- Annual maximum investment qualifying for income tax relief: SEIS = £100,000; EIS = £1,000,000
- The annual investment allowance (AIA) is doubled to £500,000 and is extended until December 2015
- Both the company and the investor have to qualify in order to receive tax relief under EIS or SEIS
From 2012 onwards:
The annual amount a company can raise from EISs or VCTs increased from £2 million to £5 million.
So, with effect from 6 April 2012, the following major enhancements to the EIS came into effect:
- Annual amount a company can raise increased to £5 million.
- Gross Assets of a qualifying company increased from £7 million (£8 million after new money) to £15 million (£16 million after new money).
- Maximum number of employees of a qualifying company increased from 49 to 249.
The other major change is that individuals can obtain income tax relief on investment of £1 million per year, up from £500,000.
* Subject to meeting certain criteria