What is the Enterprise Investment Scheme (EIS)?

What is EIS?

Launched in 1994, the Enterprise Investment Scheme, EIS, is a government programme designed to encourage investment in smaller, unlisted companies by offering a range of substantial tax reliefs.

Investments. EIS

What are the benefits of investing in companies qualifying under EIS?

EIS is a tax-efficient opportunity for investors who are looking for an alternative source of higher, long term growth potential for their investment portfolio.

Here is an outline of the tax breaks available to investors in EIS-qualifying companies:

Income tax relief

The scheme offers an upfront 30% reduction of income tax on the amount invested (up to a maximum of £1m), provided the EIS investment is held for a minimum of three years.

Capital Gains Tax exemption

Capital Gains Tax (CGT) exemption is available for gains arising from the sale of the holdings. In order to be eligible for CGT exemption, EIS investments must be held for at least three years.

Capital Gains deferral relief

Additionally, investors are entitled to unlimited Capital Gains Tax deferral relief on condition that the investment is made less than 36 months before the date of the issue of shares in the EIS investment, and no more than 12 months after it.

Loss relief

EIS holdings are eligible for loss relief in the event that EIS shares are disposed of at a loss. Losses can be offset against the investor’s capital gains or income either in the tax year in which they arise or the preceding financial year.

If you are a 40% taxpayer, the loss relief will limit the maximum exposure to 42.5p in every pound you have invested, while for a 45% taxpayer the same relief mitigates downside exposure to 38.5p in the pound.

Inheritance tax relief

Provided funds have been held for at least two years, investors in EIS companies are eligible for Inheritance Tax exemption (IHT).

Strength to strength

Since EIS was launched in 1994, over £14 billion has been raised and more than 24,500 companies have benefited from investment via the scheme. In 2014–15, 3,130 companies raised a total of £1.7 billion of funds under EIS.

In the current investment climate of stock market volatility and low interest rates, the scheme’s high growth potential and substantial tax relief will continue to drive demand for its assets among higher rate taxpayers’ portfolios.

For more information on EIS and other alternative assets, visit: https://www.coinvestor.co.uk/.