EIS Income Tax Relief & CGT Exemption – Explained

EIS Income Tax Relief & CGT Exemption, Examples & Explanations

Introduction

The main event for EIS investors will often be the income tax relief that accompanies their investment. However, where the conditions are satisfied (and continue to be satisfied for three years) then the investor will also get an exemption from capital gains tax if sold at a gain.

Further, if the EIS shares are sold at a loss then the capital loss can also be offset against the income of the investor and not just against capital gains.

Form & Amount of Relief

The income tax relief is provided by a tax reducer. This is 30% of the investment made by the investor subject to an overall cap.

The cap is usually a maximum of £1m per annum. However, the amount can be extended to £2m where the excess is made up of investments in one or more Knowledge Intensive Companies (“KICs”)

Year for which relief is due

The general rule is that tax relief is available in the tax year in which the shares are issued.

However, one may claim to have some or all of the relief in the preceding year. There is no limit on the amount which may be carried back (subject to the limits prevailing for that previous year).

Eligibility for EIS Income Tax Relief

List of qualifying conditions for EIS income tax / CGT exemption relief:

• Must satisfy the Risk to Capital (“R2C”) condition
• The relevant shares are issued to an investor
• The shares are issued before 6 April 2025
• The investor is a ‘qualifying investor’
• General requirements are satisfied
• The issuing company is a qualifying company

If you have any queries about EIS, whether as a potential investee company or investor, then please do get in touch.

Albeit, we can’t give you investment advice as we are not regulated by the Financial Conduct Authority – so please get that type of advice from someone who is!

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