Invest in small UK companies with an EIS
The Enterprise Investment Scheme, or EIS, is designed as a way of attracting investors towards smaller trading companies, thus enabling those companies to raise funding for growth. EIS offers investors a great opportunity for tax relief on investments in small, growing UK companies.
What tax relief applies to an EIS investment?
EIS investors receive tax relief of 20% on investments up to £500,000. The maximum tax relief possible is, therefore, £100,000. This is set against the individual’s tax liability, in other words, you have to have paid the tax in the first place, in order to avail of the tax relief.
Tax relief is not paid automatically on an EIS investment, it must be claimed on the offical form EIS3. This can be done up to 5 years after the first 31st January following the tax year in which the investment was made.
How long do I have to invest in the EIS?
You have to leave you money invested in the EIS for at least 3 years, in order to retain your EIS relief. Furthermore, you are not allowed to have any connection to the company or companies in which you are investing.
What other options does an EIS investment offer?
A carry-back facility allows you to offset this year’s EIS investment against last year’s tax, making an Enterprise Investment Scheme an attractive way to ‘claw back’ tax from HMRC.
This means that if you paid £10,000 in tax last year, you can invest £50,000 in an EIS this year and your full tax bill of £10,000 from last year will be paid back to you.
The maximum investment limit applies under the carry-back facility as well, so that you can invest £500,000 in an EIS scheme this year and receive tax relief of £100,000 from last year – again, of course, provided that you paid £100,000 in tax in the first place.
What kind of companies will an EIS invest in?
Companies eligible for EIS investment are said to have ‘qualifying status’. They must have fewer than 50 employees, and conduct their business mainly in the UK. EIS ‘qualifying companies’ are trading companies, excluding the following activities: land dealing, financial activities, legal or accountancy services, and property-based activities.
EIS schemes offer a Capital Gains Tax benefit
Provided you have stayed invested in the enterprise investment scheme for the required 3-year period, any gains from your EIS scheme are free from Capital Gains Tax (CGT).
The Risk – Changes that can affect EIS relief
You can lose EIS relief on your EIS investment if the company in which you have invested does something that causes it to lose its ‘qualifying status’. It is important to take note of this, as it is a real risk you take, when you invest in an EIS scheme. The company in which you have invested may take actions or decisions that are beyond your control, but which may well cost you your EIS relief.
You can also lose EIS relief on your EIS investment if you become connected in any way to the company in which you have invested.
Investment through EIS Funds
An EIS investment is also possible through an EIS Fund, which will invest on your behalf in a number of EIS qualifying companies.
Would you like to find out more about investing in an Enterprise Investment Scheme / EIS ? Make an investment enquiry now online, or ring us on freephone 0800 678 5929.
