Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) is a series of UK tax reliefs designed to encourage investments in small companies. EIS offers both income tax and capital gain tax reliefs to investors in these companies. There are many provisions that both the company and investor must adhere to, such as that the investor must not have more than a 30% interest in the company.
The EIS incentive was introduced in 1994 and has enabled SME's to attract new investments where otherwise they would have struggled. The SEIS is a new scheme launched in 2012 and is aimed at the very small companies.
EIS can operate in a number of ways:
- A scheme giving income tax relief on the investment and a CGT exemption on gains made when the shares are disposed of and/or
- A scheme aimed at providing a CGT deferral.
- An individual can take advantage of either or both of these schemes.
Small Businesses may at some point look to further investment to kick start the next stage of its growth. In many cases, this will involve traditional approaches to banks or other institutions for loans/mortgages etc. to fund the cost of the planned growth.
However, occasionally SME owners will approach individuals and other organisations for direct investment into the business via the subscription of new shares. In respect of attracting individuals, it may be useful to setup an Enterprise Investment Scheme [EIS] or a Seed Enterprise Investment Scheme [SEIS].
Although there are currently no restrictions to the minimum amount that can be invested, there is a restriction to the maximum amount you can invest of £1 million. The investor is also required to hold the shares for a minimum term of three years. If the shares are disposed of within this timeframe, then the income tax relief will be withdrawn.
Both schemes are attractive to investors as the benefits received in addition to a stake in the SME are:
- Income tax relief on of the cost of the shares
- Capital gains tax exemptions
- Capital gains tax deferral on gains realised before or after the subscription of the EIS shares
Investors may be given income tax relief at 30% on their investments of up to £1,000,000 a year.
The income tax relief is withdrawn if the shares are disposed of within three years.
The approval of the registration scheme is quite technical and complex therefore having a safe pair of hands to manage this process is recommended. Once HMRC has made a decision, it cannot be reversed.
We have implemented these schemes for a number of our clients. If you would like to more, please do get in touch with one of our partners on +44 (0)20 8861 7575.
If you prefer, please complete the form on the right, and we’ll call you straight back (within 24 hours) and we will answer any questions you may have about the EIS scheme, including CGT exemptions or deferrals.
Please note that qualifying companies must meet certain conditions for any of the reliefs to be available for the investor.