If you’re looking for information about EIS investments and their benefits,
here’s a quick overview to help you understand how EIS investment opportunities work.
Over 30,000 individual companies have received investment through EIS investments and over £20 billion of funds have been raised.
£1.9 billion of funds
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Data for 2018-19 shows that 3,920 companies raised a total of £1.9 billion of funds through EIS investments.
21 New Entrants
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There are 66 open offers with 2019 seeing 21 New Entrants.
Tech focused
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43% of offers are Tech focused.
Pension limits
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Advisers are using EIS to counteract lower pension limits, rising assets prices and more estates being caught in the IHT trap.
Tax relief
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Tax relief is now seen as incidental and acts merely as a risk mitigator.
£3bn in tax relief
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EIS has cost the Treasury £3bn in tax relief over the last decade but industry calculations demonstrate for them to “break even” only nine jobs need to be created per £1m of EIS Investment.
Tax efficient schemes
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For every £1 invested via tax efficient schemes the government gets back £4.
EIS Benefits
Investors are eligible for the following tax reliefs:
When it comes to EIS benefits, these investments are designed to help SMEs raise finance. They do this by offering a range of EIS tax reliefs to investors who purchase new shares in these SMEs.
EIS Benefit #1 - Income Tax Relief
Upon investing into an EIS, qualifying company investors can claim 30% income tax relief on the amount invested against their income tax bill. It’s possible to ‘carry back’ all or part of the investment to the preceding tax year – as long as the limit for relief is not exceeded for that year. EIS investments need to be held for 3 years for the tax reliefs to be retained.
up to a maximum of £1m or up to £2m (if anything above £1m is invested in Knowledge Intensive Companies) current and preceding year.
30% Income tax relief on subscription amount.
Relief will be partially or wholly withdrawn if the relevant shares are disposed of within 3 years of acquisition or within 3 years of the company starting to trade if later, or if the Investor or Company ceases to qualify within that period or if the investor receives value in that period or the 12 months prior to the share issue.
Income tax relief is not withdrawn if the company becomes quoted within 3 years.
Transferring shares to a spouse or civil partner during the 3 year period will not trigger a clawback of relief but transferring to any other 3rd party does.
EIS Benefit #2 - No Capital Gains Tax
Provided the shares are held for a minimum of three years, there is no Capital Gains Tax (CGT) due on the proceeds.
However, the shares can be held for much longer to realise the investment potential, thus continuing sheltering gains from CGT and potentially sheltering substantial capital gains.
EIS Benefit #3 – Inheritance Tax / Business Relief
The companies being invested into also qualify for Business Relief. Shares that have been held in a qualifying EIS investment for two years or more at the point of death, fall outside of an investor’s estate for IHT purposes.
This gives a potential saving of 40% on the full value of shares held.
EIS Benefit #4 – Loss Relief
Loss relief applies in the event that an investment becomes crystallised as a loss. Investors can offset up to 45% of this loss, net of tax relief.
As with many types of investments, it’s important to ensure that you understand and follow the rules, so please check the government guidance on how this loss relief works here.
EIS Benefit #5 – Capital Gains Tax Deferral Relief
Capital gains made 3 years preceding or 12 months after investment can be deferred utilising EIS qualifying companies, and could potentially be further reduced by other tax allowances over time.
This could include timing disposals in order to utilise annual CGT allowances and inter-spousal transfers to maximise tax efficiency.
EIS Benefit #6 – Business Investment Relief
A UK resident, non-domiciled individual can remit ‘clean capital’ (i.e. offshore funds that do not represent income or gains that would be taxed on remittance) to the UK without a tax charge.
The investment must be made within 45 days of the offshore income or gains being remitted in a UK qualifying company. To learn about EIS investment opportunities and their benefits in more detail, request your copy of our EIS Investment Guide here.
