For individuals looking to invest in growing businesses, the Enterprise Investment Scheme (EIS) can offer an attractive combination of investment opportunity and valuable tax reliefs. Introduced by the UK Government in 1994, the scheme was designed to encourage investment in smaller, higher-risk companies by offering investors a range of tax benefits.
While EIS investments are not suitable for everyone and carry a higher level of risk than many traditional investments, they can form part of an effective tax planning strategy for some individuals.
What is the Enterprise Investment Scheme?
The Enterprise Investment Scheme allows qualifying companies to raise investment by issuing new shares to individual investors. In return for supporting growing businesses, investors may benefit from several generous tax reliefs.
A qualifying company can raise up to £5 million per year through venture capital schemes such as EIS, with a lifetime funding limit of £12 million. To qualify, businesses must meet a range of conditions relating to their size, trading activities and ownership structure.
How does EIS benefit investors?
The main attraction of EIS is the range of tax reliefs available. Here are two main benefits.
- Income tax relief
Investors can claim income tax relief equal to 30% of the amount invested, provided the shares are held for at least three years.
For most investors, relief can be claimed on investments of up to £1 million per tax year. This increases to £2 million, with additional investment in qualifying knowledge-intensive companies.
- Capital gains tax benefits
EIS also provides valuable capital gains tax (CGT) advantages.
If the qualifying shares are held for at least three years and income tax relief has been retained, any gain made on the disposal of the shares is normally free from CGT.
In addition, investors can defer capital gains realised from the sale of other assets by reinvesting those gains into EIS qualifying shares. This allows the CGT liability to be postponed until a later date.
Is EIS right for you?
The Enterprise Investment Scheme offers significant tax advantages, but it is important to remember that these benefits come alongside higher investment risk and reduced liquidity. Shares are typically held in unquoted companies, which can make them difficult to sell quickly.
As with any investment decision, specialist financial advice should be sought before proceeding. The suitability of EIS will depend on your personal circumstances, tax position and investment objectives.
We can help you understand the tax implications of EIS investments and work alongside your independent financial adviser to ensure that any investment decisions align with your wider tax planning strategy.
You can call us on 01623 490 120 or email