EIS Tax Relief
What EIS Tax Relief is available? We are all aware of the Enterprise Investment Scheme but what do we actually know about EIS Tax Relief and what is actually available, when it can be implemented and what, if any are the pitfalls of the EIE Tax Relief Scheme?
EIS Income Tax Relief
No minimum investment through EIS by any single company in any one tax year. 30% tax relief is available on investments up to £1 million per annum generating a maximum tax reduction of £300,000 per year, subject to having the required Income Tax liability.
EIS tax relief allowances are allocated on a per person basis. A married couple could invest up to £2 million each tax year via The Enterprise Investment Scheme and be eligible for Income tax relief. The stipulation is that the shares must be held for a minimum of 3 years from the date of issue or the tax relief will be withdrawn.
People connected directly with the given company are not eligible for Income Tax Relief on their shares.
Capital Gains Tax exemption (CGT)
Any gain is free of CGT subject to the shares being held for at least 3 years and the income tax relief has been claimed on them. Shares can be held indefinitely and potentially allow the investor to be accrue CGT exemption over a protracted period which is a big attraction of the EIS tax relief incentive.
Capital Gains Tax deferral relief
Payment of Capital Gains Tax is deferrable when the gain is invested in shares of an EIS qualifying company. The gain can be made from the disposal of any kind of asset but the Investment must be made one year before or three years after the gain arose – connection to company does not matter. For unconnected investors there is eligiblity for relief from both Income tax and capital gains tax referral relief.
EIS Loss relief
Should shares be disposed of at a loss, the investor can elect that the amount of the loss, less Income Tax relief given, can be set against income of the year in which they were disposed or, on income of the previous year instead of being set of against any capital gains.
EIS Carry Back
There is a ‘carry back’ facility which allows the all or a portion of the cost of shares acquired in one tax year, to be treated as if those shares had been acquired in the preceding tax year. Relief is then given against the Income Tax liability of that preceding year rather than against the tax year in which those shares were acquired. This is subject to the overriding limit for relief for each year.
You can see examples of EIS tax relief using example data here EIS tax relief
Our resident Tax Pastor has a free to download Everything You Need To Know About EIS HERE