The EIS Scheme
Launched in 1994 as the successor to the Business Expansion Scheme, The EIS Scheme was devised to help higher risk companies that qualify for the scheme to raise capital and allowing investors EIS Tax relief on their shares.
With individual investment of up to £1,000,000, The Enterprise Investment Scheme – EIS Scheme has a number of the more usual pre-qualifying criteria that must be adhered to including:
- The shares must be paid fully, in cash when issued.
- Shares must be full risk ordinary shares. they may not be redeemable or carry any preferential rights to company assets should the company be wound up.
- There must be no arrangements to protect the investor from the normal risks associated with investing in shares, and no arrangements at the time of investment for the shares to be sold at the end of the relevant period.
- The shares may not be acquired using a loan made available on terms which would not have applied other than in connection with the acquisition of the shares in question.
- The shares must not be issued under any ‘reciprocal’ arrangements, where company owners agree to invest in each other’s companies in order to obtain tax relief.
- There must be no arrangements (either at the time of issue of the shares or later) to structure a company’s activities with the main purpose of allowing a party other than the company to benefit from the tax advantaged finance which the scheme is intended to incentivise, or where those activities have no commercial purpose other than to generate tax relief.
“One of the most attractive attributes of EIS Scheme investing is its fundamentally democratic nature. EIS gives power and control to individuals to invest directly in fast-growing British companies, and the chance to share in their success”.
Rt Hon Mark Field MP
MP for Cities of London and Westminster
Former Chairman of the All-Party Parliamentary Group on Venture Capital and Private Equity
Full details on the EIS Scheme are available here
Due to the success of the EIS Scheme over the last two decades, the Government has recently introduced the SEIS or Seed Enterprise Investment Scheme which targets companies looking to raise that initial £150,000 of funding in their first two years.
Private investors have embraced these EIS opportunity incentives with the latest HMRC figures estimating £12.2 billion has been raised for 22,700 companies via EIS, with a total £1.393 billion raised for 2,600 companies in 2013-14 alone. CONTACT us for more EIS information.
Our resident Tax Pastor says ‘ click HERE for a free download of 12 EIS Scheme facts and tips you MUST KNOW’. including the EIS scheme. Our Pastor is also available to offer impartial advice on EIS companies as well as all tax related issues including EIS relief.
So let us recap on the EIS Scheme and what everyone needs to know:
EIS Scheme– SO What Do you need to know?
The following information is to provide some clarity on what the exact benefits of EIS scheme investing are, direct EIS investing or via a fund, approved or unapproved funds and cutting through some of the barriers in regard to what offers are available to the investor seeking tax efficient investment structures.
30% income tax relief – EIS
30% income tax relief may be claimed against income tax paid or payable in relation to the current tax year on total investments up to £1m per investor.
Alternatively an investor can opt to treat an investment as having been made in the previous tax year, in whole or in part, such that 30% tax relief is available against income tax paid or payable for that year.
Capital gains tax deferral VIA EIS SCHEME
Capital gains tax deferral on unlimited gains invested in qualifying companies, in respect of gains that arise within three years before and 12 months after the date of EIS investment.
100% inheritance tax exemption VIA EIS SCHEME
Through the availability of BPR (business property relief), there may be 100% inheritance tax exemption on the death of the investor (or on certain lifetime transfers) for each individual investment that has been held for at least two years.
Loss relief (providing total tax relief of up to 61.5%). A loss on any qualifying EIS investment in the portfolio, regardless of the overall performance of the portfolio, can be offset by individuals against income of the tax year of the loss, or the previous tax year, or against capital gains (including against the tax liability that arises on the revival of any deferred gain) of the tax year of the loss and future years.