EIS Tax Breaks

EIS tax breaks are some of the most generous available in the UK today. The Enterprise Investment Scheme was set up by the UK Government in 1994 and offers tax breaks to investors that invest in shares in smaller UK companies.

One of the many appeals is that small companies – obviously starting from almost a standing start have the opportunity to grow very quickly, offering the investor the opportunity so see their initial investment rise significantly, very quickly. The downside of course is that many small companies either do not see significant growth or fail. The EIS scheme addresses these concerns of the investor and has a strategy in place to soften the potential blow.

Enterprise Investment Scheme – EIS Tax Breaks

And so to the opportunities of EIS and the tax breaks currently available.

  • Firstly you get income tax relief of 30%. Should you invest for example, £100,000 in an EIS eligible company you will receive  £3,000 off your income tax bill in the year of the investment.
  • The profits that you make from your EIS investment will not attract Capital Gains Tax, Invest £20,000 and sell 5 years later for £40,000 and you will get the full benefit of the £20,000 benefit with NO CAPITAL GAINS TAX
  • Should you incur a loss then you can offset that loss against your tax liability. The income tax relief of £3,000 on an investment of £10,000 is actually a loss of just £7,000 worst case scenario.
  • Shares that are bought through the Enterprise Investment Scheme are not subject to inheritance tax.

You need to pay tax on dividends but of course many small companies do not pay out dividends anyway. You are not permitted to be connected to the relevant EIS company nor can hold hold a stake higher than 30% in that company.

The maximum that you are permitted per annum through EIS is £1 million

 

SEIS – SEED ENTERPRISE INVESTMENT SCHEME TAX BREAKS

Set up in 2012 the SEIS is very similar to The Enterprise Investment Scheme, the SEIS is even more generous that EIS with tax breaks and is designed for investment in smaller companies.

SEIS companies are subjected to a lower maximum number of staff, limited to 50 [EIS is 250 staff] and gross assets of £200,000 [EIS £15 million]. A qualifying SEIS company must be under 2 years old whereas there is no age limit foe EIS.

SEIS Tax Breaks Summary as follows:

  • SEIS Income Tax Relief is up to 50% as compared with EIS set at 30%. A £10,000 investment with an SEIS qualifying company will achieve £5,000 off your income tax bill.
  • There is no Capital Gains Tax payable on profits – as with EIS. Also there is no Inheritance Tax and loss relief can be claimed in the same way as with EIS.
  • Capital Gains Reinvestment Relief is an added relief over EIS which allows up to 50% of Capital Gains Tax already paid to be claimed if you re-invest in SEIS.

The maximum annual investment in SEIS is £100,000 in any tax year.

HOW TO ACCESS SEIS AND EIS COMPANIES

You can access SEIS and EIS providers via ourselves or we can point you in the direction of EIS providers. Contact us for further advice if needed.

Visit the Pastors Tax Confessional by clicking HERE

 

eis tax breaks