EIS Tax Relief Restrictions
Please see below our summary of EIS tax relief instructions.
Connection to the Company
EIS tax relief restrictions apply should the investor be connected to The Enterprise Investment Scheme company, they are not eligible for Income Tax Relief. Connections are defined through financial interest or employment.
Connection by financial interest
An individual is connected with the company if they control the company or hold more than 30% of the share capital or voting rights. These conditions apply for up to 2 years before and 3 years after the share issue. If during this time, the individual becomes connected, then the relief will be withdrawn. All relatives except brothers and sisters are included within these restrictions.
Connection by employment
Partners, directors and employees of the company are all connected with it and therefore not eligible, as are associates. Associates are business partners, trustees and relatives. Again, these conditions apply for up to 2 years before and 3 years after the share issue.
The only exceptions are Business Angels – where the connection is as a director who receives no remuneration from the company.
Claiming your tax relief
The investor can only claim relief once the company sends through an EIS3 form. Claims are made through the Self-Assessment tax return for the tax year in which the shares were issued.
Claims can be made up to five years after the investment after the first 31 January following tax year in which investment was made.
Tax relief that is reduced or withdrawn
Tax relief will be withdrawn if you become connected to the company or if the company loses its qualifying status.
The relief will be either reduced or withdrawn if the Shares are disposed of or if the investor receives “value” from the company such as a loan or an asset below market value.
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