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{{Use British English|date=May 2023}}
⚫
The '''Enterprise Investment Scheme (EIS)''' is a series of UK tax reliefs launched in 1994 in succession to the Business Expansion Scheme.<ref>{{cite web|title=New business expansion scheme may be too taxing (16 Apr 1994)|url=http://www.heraldscotland.com/news/12676161.New_business_expansion_scheme_may_be_too_taxing/|website=heraldscotland.co.uk|publisher=The Herald|accessdate=17 January 2017}}</ref> It is designed to encourage investments in small unquoted companies carrying on a qualifying trade in the [[United Kingdom]].
{{Use dmy dates|date=May 2023}}
⚫
The '''Enterprise Investment Scheme (EIS)''' is a series of UK tax reliefs launched in 1994 in succession to the Business Expansion Scheme.<ref>{{cite web|title=New business expansion scheme may be too taxing (16 Apr 1994)|url=http://www.heraldscotland.com/news/12676161.New_business_expansion_scheme_may_be_too_taxing/|website=heraldscotland.co.uk|date=16 April 1994 |publisher=The Herald|accessdate=17 January 2017}}</ref><ref>{{Cite web|date=2019-02-27|title=The EIS evolution: How will incoming changes affect investors?|url=https://www.cityam.com/eis-evolution-incoming-changes-affect-investors/|access-date=2020-06-03|website=CityAM|language=en-GB}}</ref> It is designed to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom.<ref name=":0">{{Cite web|last=Thorpe|first=David|date=2018-10-05|title=Investment schemes offer tax relief to encourage investment in small or medium-sized companies|url=https://www.whatinvestment.co.uk/eis-and-seis-tax-breaks-explained-2381293/|access-date=2020-06-03|website=What Investment}}</ref>

By the end of the 2014–15 tax year, a cumulative total of £14.2 billion had been invested under the scheme into approximately 25,000 companies. In that year, in excess of £1.8 billion was invested under the EIS.<ref>{{cite web|title=Comments on the latest EIS and SEIS fundraising data from HMRC|url=http://www.eisa.org.uk/the-latest-eis-and-seis-fundraising-data-from-hmrc/|website=Enterprise Investment Scheme Association|accessdate=17 January 2017|archive-date=18 January 2017|archive-url=https://web.archive.org/web/20170118055803/http://www.eisa.org.uk/the-latest-eis-and-seis-fundraising-data-from-hmrc/|url-status=dead}}</ref>


==Purpose==
==Purpose==
Investment in companies that are not listed on a [[stock exchange]] often carries a high risk. The tax relief is intended to offer some compensation for that risk. The EIS offers both income tax and capital gains tax reliefs to investors who subscribe for shares in qualifying companies.<ref name="gov.uk Intro to EIS">{{cite web|title=Introduction to the Enterprise Investment Scheme|url=https://www.gov.uk/government/publications/the-enterprise-investment-scheme-introduction/enterprise-investment-scheme|website=gov.uk|accessdate=17 January 2017}}</ref>
Investment in companies that are not listed on a [[stock exchange]] often carries a high risk of loss of capital, and low [[liquidity|market liquidity]] means that it may be difficult or time consuming to sell or realise the investment. The tax reliefs available under the EIS are intended to offer investors some incentive to counterweigh those risks.<ref name=":0" />


===Provision of tax relief===
'''EIS Tax Benefits'''
* 30% upfront Income Tax relief up to maximum investment of £1 million, which can be carried back to the previous tax year
* 100% Inheritance Tax relief (provided the investments have been held for at least 2 years at time of death)
* Capital gains tax deferral for the life of the investment
* Tax-free growth
* Tax relief from investment losses<ref>{{cite web|url=http://www.kuberventures.co.uk/why-eis/benefits/|title=EIS Tax Benefits|publisher=EIS platform|accessdate=11 September 2015}}</ref>


The EIS offers several different kinds of tax relief, available both to direct investors and investors through a managed EIS fund or portfolio service. They are conditional upon the company receiving investment being a qualifying company under the scheme.<ref name="Introduction to EIS - gov.uk">{{cite web|title=Introduction to the Enterprise Investment Scheme|url=https://www.gov.uk/government/publications/the-enterprise-investment-scheme-introduction/enterprise-investment-scheme|website=gov.uk|accessdate=17 January 2017}}</ref> A brief summary of the tax benefits is as follows:
==Provisions==

* An individual with no more than a 30% interest in the company can reduce his [[income tax]] liability by an amount equal to 30% of his share subscription. The maximum subscription per investor is currently £1,000,000 per annum, yielding a potential reduction in tax liability of £300,000 per annum (assuming the investor has sufficient income tax liability).<ref>{{cite web|url=http://www.ft.com/cms/s/2/2616e96e-5557-11e0-87fe-00144feab49a.html#axzz1SIAeMwts|title=Budget 2011: what it means for you|last=Powley|first=Tanya|author2=Vincent, Matthew |author3=Ross, Alice |author4=Lodge, Steve |author5= Moore, Elaine |date=23 March 2011|publisher=The Financial Times|accessdate=15 July 2012}}</ref><ref name="HMRC">[http://www.hmrc.gov.uk/eis/part1/1-2.htm HMRC]</ref>
* 30% up front [[Tax_rates_in_Europe#United_Kingdom|income tax]] relief, which can be carried back to the previous tax year. The maximum subscription is currently £1,000,000 per investor per year (this rises to £2,000,000 per year if the companies are deemed 'knowledge intensive'), yielding a potential reduction in tax liability of £300,000 per annum (assuming the investor has sufficient income tax liability).<ref>{{Cite web |date=2023-05-25 |title=Tax relief for investors using venture capital schemes |url=https://www.gov.uk/guidance/venture-capital-schemes-tax-relief-for-investors |access-date=2023-05-26 |website=GOV.UK |publisher=HM Revenue & Customs |language=en}}</ref><ref>{{cite web|url=http://www.ft.com/cms/s/2/2616e96e-5557-11e0-87fe-00144feab49a.html#axzz1SIAeMwts|title=Budget 2011: what it means for you|last=Powley|first=Tanya|author2=Vincent, Matthew |author3=Ross, Alice |author4=Lodge, Steve |author5= Moore, Elaine |date=23 March 2011|publisher=The Financial Times|accessdate=15 July 2012}}</ref><ref name="Introduction to EIS - gov.uk" />
* Deferral of capital gains realised on a different asset, where disposal of that asset was less than 12 months before the EIS investment or less than 36 months after it. This relief is limited to the amount being invested into the EIS and can be claimed by investors whose interest in the company exceeds 30%. It is available to individuals and trustees. Where gains arise on the EIS investment, taper relief is available. Note that deferral of gains is no longer available by investing in VCTs.
* [[Capital_gains_tax#United_Kingdom|Capital gains tax]] (CGT) deferral – an investor can defer capital gains realised on a different asset, where disposal of that asset was less than 12 months before the EIS investment or less than 36 months after it. This relief is limited to the amount being invested into the EIS and can be claimed by investors whose interest in the company does not exceed 30%. It is available to individuals and trustees. Where gains arise on the EIS investment, taper relief is available.<ref>{{Cite web|first=Ajit|last=Singh|title=The Human Heath EIS: Capital gains tax relief |url=https://o2hventures.com/|website=o2h ventures}}</ref>
* No [[capital gains tax]] payable on disposal of shares after three years (after five years for investments made before 6 April 2000) provided the EIS initial income tax relief was given and not withdrawn on those shares.<ref name="HMRC" />
* No CGT to pay on any gains made when the investment is realised after three years (five years for investments made before 6 April 2000), provided the EIS initial income tax relief was given and not withdrawn on those shares.<ref name="Introduction to EIS - gov.uk" />
* If EIS shares are disposed of at any time at a loss, such loss can be set against the investor's [[capital gain]]s or his income in the year of disposal.
* Tax relief from investment losses – if EIS shares are disposed of at any time at a loss, such loss can be set against the investor's capital gains or income in the year of disposal, potentially limiting a total loss to 38.5% of an investor's capital<ref>{{cite web|url=https://www.wealthclub.co.uk/eis-tax-relief/|title=EIS tax savings|publisher=Wealth Club|accessdate=15 June 2017}}</ref>
EIS Investments are exempt from [[inheritance tax]] after two years of holding such investment.,<ref>{{cite web|title=The Enterprise Investment Scheme|url=https://www.syndicateroom.com/investors/enterprise-investment-scheme}}</ref> subject to the Company being allowable under Business Property Relief ("BPR").<ref>{{cite web|title=Enterprise Investment Schemes|url=http://www.enterpriseinvestmentschemes.co.uk}}</ref>
* Shares do not form part of the estate for [[Inheritance_Tax_(United_Kingdom)|inheritance tax]] purposes, provided the investments have been held for at least two years at time of death<ref>{{cite web|last=|first=|date=|title=EIS|url=https://www.syndicateroom.com/eis|access-date=|website=SyndicateRoom}}</ref> and the company qualifies for business property relief (BPR).<ref>{{cite web|title=Enterprise Investment Schemes|url=http://www.enterpriseinvestmentschemes.co.uk}}</ref>


==Qualifying companies and individuals==
==Qualifying companies and individuals==
The rules for qualifying are complicated; for example, the following are some of the qualifications that must be met:<ref name="HMRC" />
The rules for qualifying are complicated; for example, the following are some of the qualifications that must be met:<ref name="Introduction to EIS - gov.uk" />


'''The company'''
===The company===
* The company must not have assets greater than £15 million
* The company must not have assets greater than £15 million
* The company may have no more than 250 full-time equivalent employees
* The company may have no more than 250 full-time equivalent employees
* All capital employed must be actively engaged in the company within 24 months
* All capital employed must be actively engaged in the company within 24 months
* The company must not be in specific industries such as coal and steel production, farming, leasing, financial services and property development.<ref>{{cite web|title=Enterprise Investment Scheme Excluded Trades|url=https://www.gov.uk/guidance/venture-capital-schemes-raise-money-by-offering-tax-reliefs-to-investors#trades|publisher=HMRC|accessdate=26 September 2017}}</ref>
* The company must not be in specific industries
* Entry into the scheme is subject to a decision and audit made by an appointed tax officer
* Entry into the scheme is subject to a decision and audit made by an appointed tax officer
* The company must not be listed or have any intention of becoming listed at the time of the investment
* The company must not be listed or have any intention of becoming listed at the time of the investment
*The company must not have already received in excess of £12 million total funding (or £5 million within any given year) from the following sources: EIS, [[Seed Enterprise Investment Scheme|SEIS]], [[Venture capital trust]]s, social investment tax relief, or some forms of state aid.<ref>{{Cite web|url=https://seedlegals.com/resources/eis/|title=The Enterprise Investment Scheme (EIS): Fully Explained|last=|first=|website=|date=21 February 2020 |language=en-US|access-date=}}</ref>


'''The individual'''
===The individual===
* The investor may not have more than a 30% interest in the company
* The investor may not have more than a 30% interest in the company
* No partner or associate of the investor (including spouse, relations, prior business contacts) may have other interests in the company
* No partner or associate of the investor (including spouse, relations, prior business contacts) may have other interests in the company
* The investor must not have any form of preferential shares
* The investor must not have any form of preferential shares
* The investor must not have any other form of controlling interest in the company
* The investor must not have any other form of controlling interest in the company
* This scheme must not be used for the purposes of avoiding tax
* The scheme must not be used for the purposes of avoiding tax


==Seed Enterprise Investment Scheme==
==Seed Enterprise Investment Scheme==
Line 44: Line 45:
==External links==
==External links==
*[http://www.eisa.org.uk/ Enterprise Investment Scheme Association]
*[http://www.eisa.org.uk/ Enterprise Investment Scheme Association]
*[http://www.hmrc.gov.uk/eis/guidance.pdf Introduction to the Enterprise Investment Scheme]
*[http://www.hmrc.gov.uk/manuals/vcmmanual/index.htm Venture Capital Schemes Manual] – HMRC
*[https://iwcapital.co.uk/what-is-the-enterprise-investment-scheme/ What is the Enterprise Investment Scheme] – IW Capital
*[http://www.hmrc.gov.uk/manuals/vcmmanual/index.htm Venture Capital Schemes Manual]
*[https://www.syndicateroom.com/eis/guide Enterprise Investment Scheme Guide] – Syndicate Room

[[Category:Financial services]]
[[Category:Investment in the United Kingdom]]
[[Category:Investment]]
[[Category:Taxation in the United Kingdom]]

Latest revision as of 14:06, 10 March 2024

The Enterprise Investment Scheme (EIS) is a series of UK tax reliefs launched in 1994 in succession to the Business Expansion Scheme.[1][2] It is designed to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom.[3]

By the end of the 2014–15 tax year, a cumulative total of £14.2 billion had been invested under the scheme into approximately 25,000 companies. In that year, in excess of £1.8 billion was invested under the EIS.[4]

Purpose

[edit]

Investment in companies that are not listed on a stock exchange often carries a high risk of loss of capital, and low market liquidity means that it may be difficult or time consuming to sell or realise the investment. The tax reliefs available under the EIS are intended to offer investors some incentive to counterweigh those risks.[3]

Provision of tax relief

[edit]

The EIS offers several different kinds of tax relief, available both to direct investors and investors through a managed EIS fund or portfolio service. They are conditional upon the company receiving investment being a qualifying company under the scheme.[5] A brief summary of the tax benefits is as follows:

  • 30% up front income tax relief, which can be carried back to the previous tax year. The maximum subscription is currently £1,000,000 per investor per year (this rises to £2,000,000 per year if the companies are deemed 'knowledge intensive'), yielding a potential reduction in tax liability of £300,000 per annum (assuming the investor has sufficient income tax liability).[6][7][5]
  • Capital gains tax (CGT) deferral – an investor can defer capital gains realised on a different asset, where disposal of that asset was less than 12 months before the EIS investment or less than 36 months after it. This relief is limited to the amount being invested into the EIS and can be claimed by investors whose interest in the company does not exceed 30%. It is available to individuals and trustees. Where gains arise on the EIS investment, taper relief is available.[8]
  • No CGT to pay on any gains made when the investment is realised after three years (five years for investments made before 6 April 2000), provided the EIS initial income tax relief was given and not withdrawn on those shares.[5]
  • Tax relief from investment losses – if EIS shares are disposed of at any time at a loss, such loss can be set against the investor's capital gains or income in the year of disposal, potentially limiting a total loss to 38.5% of an investor's capital[9]
  • Shares do not form part of the estate for inheritance tax purposes, provided the investments have been held for at least two years at time of death[10] and the company qualifies for business property relief (BPR).[11]

Qualifying companies and individuals

[edit]

The rules for qualifying are complicated; for example, the following are some of the qualifications that must be met:[5]

The company

[edit]
  • The company must not have assets greater than £15 million
  • The company may have no more than 250 full-time equivalent employees
  • All capital employed must be actively engaged in the company within 24 months
  • The company must not be in specific industries such as coal and steel production, farming, leasing, financial services and property development.[12]
  • Entry into the scheme is subject to a decision and audit made by an appointed tax officer
  • The company must not be listed or have any intention of becoming listed at the time of the investment
  • The company must not have already received in excess of £12 million total funding (or £5 million within any given year) from the following sources: EIS, SEIS, Venture capital trusts, social investment tax relief, or some forms of state aid.[13]

The individual

[edit]
  • The investor may not have more than a 30% interest in the company
  • No partner or associate of the investor (including spouse, relations, prior business contacts) may have other interests in the company
  • The investor must not have any form of preferential shares
  • The investor must not have any other form of controlling interest in the company
  • The scheme must not be used for the purposes of avoiding tax

Seed Enterprise Investment Scheme

[edit]

On 6 April 2012, the Seed Enterprise Investment Scheme (SEIS) was launched, with the goal to "stimulate entrepreneurship and kick start the economy."[14]

References

[edit]
  1. ^ "New business expansion scheme may be too taxing (16 Apr 1994)". heraldscotland.co.uk. The Herald. 16 April 1994. Retrieved 17 January 2017.
  2. ^ "The EIS evolution: How will incoming changes affect investors?". CityAM. 27 February 2019. Retrieved 3 June 2020.
  3. ^ a b Thorpe, David (5 October 2018). "Investment schemes offer tax relief to encourage investment in small or medium-sized companies". What Investment. Retrieved 3 June 2020.
  4. ^ "Comments on the latest EIS and SEIS fundraising data from HMRC". Enterprise Investment Scheme Association. Archived from the original on 18 January 2017. Retrieved 17 January 2017.
  5. ^ a b c d "Introduction to the Enterprise Investment Scheme". gov.uk. Retrieved 17 January 2017.
  6. ^ "Tax relief for investors using venture capital schemes". GOV.UK. HM Revenue & Customs. 25 May 2023. Retrieved 26 May 2023.
  7. ^ Powley, Tanya; Vincent, Matthew; Ross, Alice; Lodge, Steve; Moore, Elaine (23 March 2011). "Budget 2011: what it means for you". The Financial Times. Retrieved 15 July 2012.
  8. ^ Singh, Ajit. "The Human Heath EIS: Capital gains tax relief". o2h ventures.
  9. ^ "EIS tax savings". Wealth Club. Retrieved 15 June 2017.
  10. ^ "EIS". SyndicateRoom.
  11. ^ "Enterprise Investment Schemes".
  12. ^ "Enterprise Investment Scheme Excluded Trades". HMRC. Retrieved 26 September 2017.
  13. ^ "The Enterprise Investment Scheme (EIS): Fully Explained". 21 February 2020.
  14. ^ "Seed Enterprise Investment Scheme". SEIS Information. Retrieved 15 July 2012.
[edit]
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