The Enterprise Investment Scheme is a UK Government scheme that is designed to help eligible companies raise finance by offering a range of tax reliefs for investors who subscribe for qualifying shares in qualifying companies. In the April 2017 report, it states that since 1993/94 over 26,000 companies have received investment through the scheme and over £15.9 billion of funds have been raised. And in the financial year of complete data 2015/2016, 3,285 companies raised a total of £1,647 million and of the total number of Advanced Assurance Request (AAR) applications received 85% were successful – matching the average since 2006/7. In itself the government drive has yielded fantastic results and galvanized billions of pounds of investments in UK companies.

There are five current EIS tax reliefs available to investors in companies qualifying under the EIS, which are summarised below:

Income Tax Relief

Qualifying investors can credit the amount of funds subscribed for eligible shares against their total liability to Income Tax for the tax year that shares are issued and also the preceding year.

Relief is available against a United Kingdom Income Tax liability, irrespective of whether or not the investor is resident in the UK.

Please note, the amount of relief given cannot exceed an investor's tax liability. A qualifying individual can claim to 'carry back' up to £500,000 of their EIS investment to the previous tax year, thereby enabling Income Tax already paid to be reclaimed.

'Carry Back' allows that, if no investment had been made in the previous tax year, up to £1,000,000 could be invested in the current tax year.

Capital Gains Tax Relief

Any capital gain accruing to the original investor on disposal of their shares is exempt from Capital Gains Tax if the shares have been held for at least 3 years. Please be aware that if no claim to Income Tax relief is made, then subsequent disposal of the shares will NOT qualify for exemption from Capital Gains Tax.

Capital Gains Tax Deferral

*  CGT assumed at 40%, the gain is deferred until there is a chargeable event, such as a disposal of EIS shares or, if earlier, a breach of the E.I.S. rules.

The liability to Capital Gains Tax arising on the disposal of any asset may be deferred by investing the gain in eligible EIS shares. Investment must be made within the period beginning one year before and ending three years after the event which gives rise to the gain being deferred.

Although there is a limit of £1,000,000 for Income Tax relief and Capital Gains Tax relief there is NO LIMIT on the amount of gains that can be deferred.

There are no minimum or maximum amounts for deferral. Nor does it not matter whether the investor is connected with the company. Unconnected investors may claim both Income Tax relief and Capital Gains Tax deferral relief.

There is no minimum period for which shares must be held. The deferred capital gain is brought back into charge whenever the shares are disposed of (or are deemed to have been disposed of under EIS legislation).

Capital Gains Tax Deferral

*  Assumed net loss offset against other income taxable at 40% as opposed to chargeable gains which are taxable at 28%.

If an original investor disposes of their shares at a loss, the net loss (after EIS Income Tax relief) may be set against other taxable income or chargeable gains (at the election of the investor).

Inheritance Tax Relief

If the investment has been held for at least two years before death, the investment should, in most cases, be entirely free from Inheritance Tax and with the other benefits of the EIS, the effective cost of investment may be reduced to nearly zero.

Note for viewers of the above section:

If the investment has been held for at least two years before death, the investment should, in most cases, be entirely free from Inheritance Tax and with the other benefits of the EIS, the effective cost of investment may be reduced to nearly zero.