EIS Investment Opportunities and the Benefits for Investors

EIS Investments – A Boost to the UK Economy

The Enterprise Investment Scheme is a UK government initiative that has been helping early-stage businesses raise funding for over 30 years. Launched in 1994, it was originally created to stimulate the UK economy as it recovered from a recession.

The idea was to encourage private investors through a range of tax benefits to help UK startups have a better chance of survival. If they did, it’s a win all around. The company would hopefully flourish from there, and EIS investors would bask in the glory of their significant tax reliefs. As for the UK government, they’d receive a boost in payments to the treasury and an increase in employment opportunities.

Due to its relative success, the scheme is still going today. Furthermore, it’s also been joined by a sister scheme, the Seed Enterprise Investment Scheme, which launched in 2012.

We should point out straight away that an EIS investment is not for everyone. The scheme offers many tax incentives that could prove lucrative if an investment pays off. However, investments are still high-risk, meaning you may not enjoy many benefits at all if the investment does not go according to plan.

We’ll take you through the Enterprise Investment Scheme in more detail below, but even so, always seek expert advice before making any decisions.

Some Statistics on the EIS and SEIS Investment Schemes

• Since the Enterprise Investment Scheme started, it has helped over 32,000 companies receive investment.
• Across those investments, the companies have raised over £24 billion.
• In the last decade, investors have received over £3 billion in EIS tax relief.

The Latest EIS Investment Figures

• In the tax year 2022 to 2023, £1,957 million of capital was raised for 4,205 UK companies.
• That figure is down 15% on the previous tax year.
• 34% of the companies that received EIS investment were from the Information and Communication sector.
• 65% of all investment went to companies in the South East of England.

It is important to note that the pandemic made a big impact during that period. We’re interested to see what the figures for 2023 to 2024 look like. They should be posted around May 2025.

EIS Benefits for Investors

The scheme promises attractive tax relief gains to cushion the high risks associated with EIS investments. It’s designed to encourage investment from high-wealth individuals to support the growth of early-stage companies.

Income Tax Relief

One of the most attractive tax breaks is the 30% income tax relief individual investors can claim on their investments.

• Investors can claim tax relief on up to £1 million per year, or £2 million if at least £1 million is invested in Knowledge Intensive Companies (KICs).
• If shares are sold within three years, some or all of the relief may be withdrawn.
• Transferring shares to a spouse or civil partner during the three-year holding period does not affect the relief.

Capital Gains Tax Exemption

Another major benefit of a successful EIS investment is the tax-free gains once shares are sold.

Capital Gains Tax Deferrals

Capital gains from the sale of other assets up to three years before or within 12 months after an EIS investment can be deferred when investing in qualifying companies.

Inheritance Tax Relief

Companies eligible for EIS investment also qualify for Business Relief, making shares exempt from Inheritance Tax if held for at least two years.

Loss Relief

The EIS scheme provides relief if the company fails. You can claim up to 45% of losses (minus income tax relief already claimed) against your income tax bill.

Other Benefits of a Successful EIS Investment

• Being Part of a Small Company’s Journey: Investing early in promising companies can be rewarding.
• Helping the UK Economy: Supporting innovation and job creation.
• Diversifying Your Investment Portfolio: EIS can complement long-term investments.

How to Invest in the Enterprise Investment Scheme (EIS)?

There are two main routes an investor can take if they want to back an early-stage business through the EIS.

Direct Investment

Investing directly gives full control but requires due diligence. This approach is best for experienced investors.

Through an EIS Fund

For a lower-risk option, an EIS fund allows a fund manager to invest in multiple qualifying companies, providing diversification and professional expertise.

However, fees can be high, and profits are shared with the fund manager.

Our Tip: While investors benefit from a hands-free approach, researching different funds and managers is crucial before investing.

EIS Investment Opportunities FAQ

Are there alternatives to EIS?

The Seed Enterprise Investment Scheme is a similar initiative to EIS but is also considered higher risk as it is aimed at younger start-ups. As a sweetener, the scheme offers up to 50% income tax relief and all the other EIS benefits above to investors. Other options worth looking into include venture capital trusts (VCTs).

Can anyone invest in the EIS?

Any high-worth UK taxpayer who’s not affiliated with, employed by, or invested in an EIS company can invest through the scheme. Just consider your options and think long and hard before committing. 

What companies qualify for investment through the EIS?

For a UK business to qualify for EIS investment, it must have made its first commercial sale within the past seven years. It should also have fewer than 250 employees and gross assets not exceeding £15 million. Additionally, the company must operate solely within the UK and cannot be listed on the London Stock Exchange.

What’s the difference between a VCT and the EIS?

There are quite a few similarities but one big difference. An investor must hold VCT shares for at least five years to qualify for the 30% income tax relief. 

What is EIS carry back?

EIS carry back allows investors to apply all or part of their EIS-eligible shares from the current tax year to the previous tax year. A savvy investor could do this to get maximum value out of their tax relief.