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The Enterprise Investment Scheme or “EIS” is a venture capital relief. It also has a little brother called Seed EIS.
Both are designed to provide investors in smaller, growth companies with attractive tax incentives IF they invest in qualifying shares and meet a myriad of other conditions and requirements.
These reliefs include:
Income tax relief – this is in the form of a tax reducer or tax credit which comes off the bottom of the tax calculation:
For EIS, this is 30% of the total qualifying investment – which is £1m for ‘general’ EIS investments or £2m if the investment is in a Knowledge Intensive Company
For Seed EIS, this is 50% of £100k
These limits apply annually…
Secondly, there is a Capital Gains Tax Exemption – If the shares qualify – and remain qualifying for a period of usually 3 years – then any gain on sale is exempt for capital gains tax purposes;
Finally there are reinvestment reliefs available – these apply where one is reinvesting the gains from the sale of another asset – the form of the relief is slightly different depending on whether it is EIS or Seed EIS.
These reliefs are highly attractive. However, this is not pure altruism from the Government. The quid pro quo is very much that these are high risk investments.
Don’t put the tax tail ahead of the investment dog. As some investment dogs get put down.
ETC can provide you with advice around whether your business might qualify for EIS or Seed EIS and take you through the process.