The Enterprise Investment Scheme (EIS) is becoming increasingly popular for businesses in the sustainable technology sector as a way of attracting finance. The EIS seeks to encourage individuals to invest equity in qualifying companies by providing those individuals with tax reliefs.
Some of the benefits for investors are as follows.
- Income tax relief of up to 30% on the amount invested in qualifying investments of up to £1,000,000 per tax year per person.
- If an investor holds EIS shares for at least three years (or for at least three years from when the company starts trading if later), upon disposal any gain arising would be exempt from capital gains tax, provided EIS income tax relief has been given and not withdrawn.
- For UK resident investors, gains on disposals of any asset can be deferred by reinvesting the gain into qualifying shares in EIS companies. The amount of gain that can be deferred is not limited by the amount of income tax relief on investment.
- Losses suffered on the disposal of EIS shares (in excess of any income tax relief given and not withdrawn) can be relieved against other capital gains or income.
- EIS investments also qualify for 100% inheritance tax relief, once the shares have been held for two years.
There is a limit on the level of funds that can be raised through the EIS and Venture Capital Trust (VCT) schemes. This limit is £5m in any 12-month period (applying from 6 April 2012), and investments from either of these schemes must fall within the aggregate limit.
There are a number of conditions that must be met in order to qualify for EIS relief, in particular the company must:
- be an unquoted trading company at the time the shares are issued
- issue new eligible shares for cash, fully paid up at the time of issue
- not be a 51% subsidiary or be under the control of another company
- be 'small', i.e. at the time of the new share issue, it must have fewer than 250 full-time employees and the gross assets of the company (or of the whole group if it is the parent of a group) cannot exceed £15m immediately before any share issue and £16m immediately after that issue
- exist for genuine commercial reasons, and not be part of a scheme for the avoidance of tax.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.