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What is an Enterprise Investment Scheme (EIS)?

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The Enterprise Investment Scheme is a program set up by the UK government to encourage people to invest in smaller companies that are not listed on a stock exchange. By investing in these companies, you're buying their shares, becoming a shareholder, and in return, you get various tax benefits.

 

Key Features of Enterprise Investment Schemes

 

Types of Companies

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EIS focuses on smaller companies that are not listed on any recognised stock exchange. These companies should have fewer than 250 employees and should not have assets exceeding £15 million.

 

Investment Limits

• Individual Limit: You can invest up to £1 million in a single tax year. This limit can go up to £2 million if at least £1 million is invested in companies that are knowledge-intensive.

• Company Limit: Companies can raise a maximum of £5 million each year through EIS and other similar venture capital schemes.

 

Share Types

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When investing in an EIS, you must buy "ordinary" shares. These are basic shares without any special rights to dividends or company assets.
Benefits of Using Enterprise Investment Schemes

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Income Tax Relief

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One of the main attractions of EIS is the ability to claim back 30% of the cost of your investment against your income tax bill for that tax year.

 

Capital Gains Tax Exemption

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If you hold onto your EIS shares for a minimum of three years, any profit you make when you sell the shares is free from Capital Gains Tax.

 

Loss Relief

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If the company you've invested in fails, you can claim loss relief. This means you can offset the loss against your income tax or capital gains tax for that year.

 

Inheritance Tax Relief

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Generally, EIS investments are exempt from Inheritance Tax if you've held the shares for at least two years.

 

Age and Investment Limits

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• Age Limits: You must be at least 18 years old to invest in an EIS.

• Investment Limits: The maximum you can invest is £1 million per tax year, which can be extended to £2 million if you're investing in knowledge-intensive companies.

 

Tax Rules in the United Kingdom

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• Income Tax: You can claim 30% income tax relief on the cost of the shares.

• Capital Gains Tax: Any gains are tax-free if you've held the shares for at least three years.

• Inheritance Tax: EIS investments are generally exempt from Inheritance Tax after two years.

 

Additional Considerations

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• Risk: EIS investments are high-risk and not easy to sell quickly.

• Holding Period: To qualify for the tax benefits, you must hold the shares for at least three years.

• Complexity: The rules around EIS are complex and can change, so it's essential to stay updated and seek professional advice.

 

Enterprise Investment Schemes in the United Kingdom

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The Enterprise Investment Scheme offers a unique blend of investment opportunities and significant tax benefits. However, it's not without its complexities and risks. Given the high stakes involved, it's highly recommended to consult an Independent Financial Advisor (IFA) for personalised advice tailored to your specific needs and circumstances.

For more information or to discuss your individual circumstances, feel free to contact us.

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This page is for information purposes only and should not be considered as financial advice. Always consult an Independent Financial Adviser for personalised financial advice tailored to your individual circumstances.

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