What is the Enterprise Investment Scheme?
The Enterprise Investment Scheme (EIS) is intended to encourage investment into small and medium sized companies with a higher risk profile by offering significant tax relief to investors.
The EIS has evolved continually since its inception in 1994. Recent years have seen a significant increase in the applicable thresholds, creating a greater incentive for investors to make EIS eligible investments.
Why should I be interested in EIS?
Many small and medium companies in the FinTech sector will, in principle, qualify to receive EIS investments. The potentially generous tax reliefs available make investments eligible for EIS particularly attractive to investors.
Reliefs available include:
Income tax relief – income tax relief is available for the investor to the value of 30% of the amount of the qualifying EIS investment (subject to a cap).
CGT deferral – capital gains realised on the disposal of other assets can be deferred by reinvesting the proceeds of the disposal in qualifying EIS investments.
CGT exemption – gains on qualifying EIS investments are exempt from capital gains tax after three years.
IHT – qualifying EIS investments generally qualify for 100% business property relief once held for two years.
Loss relief – losses on qualifying EIS investments (less any EIS income tax relief already received) can be set-off against income to reduce Income tax.
Does the investment qualify for EIS relief?
There are a number of requirements relating to the company, the investor and the shares which must be met. For a summary of some of the main requirements please see over the page.
Take advice to ensure that an investment will qualify for EIS relief. The rules surrounding eligibility for EIS relief are too complex to cover fully here and change frequently. There are several ways in which an investment can fail to meet the criteria. In some cases, a seemingly insignificant deviation from the conditions of EIS can lead to the full amount of relief being denied or withdrawn.
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