Since EIS was launched in 1993-94:
EIS investments are designed to help SMEs raise finance by offering a range of EIS tax reliefs to investors who purchase new shares in these SMEs. Investors are eligible for the following tax reliefs:
Upon investing into an EIS qualifying company investors can claim 30% income tax relief on the amount invested against their income tax bill. It is 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.
Investments will need to be held for 3 years for the tax reliefs to be retained.
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.
The companies being invested into also qualify for Business Relief. Shares that have been held in an EIS qualifying 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.
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.
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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.
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.
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