Enterprise Investment Scheme (EIS)
The purpose of the Enterprise Investment Scheme (EIS) is to help certain types of small higher-risk unquoted trading companies to raise capital. It does so by providing income tax and CGT reliefs for investors in qualifying shares in these companies.
There are really two separate schemes within EIS:
- a scheme giving income tax relief on the investment and a CGT exemption on gains made when the shares are disposed of and/or
- a scheme aimed at providing a CGT deferral.
An individual can take advantage of either or both of these schemes.
Income tax relief
- Investors may be given income tax relief at 30% on their investments of up to £1,000,000 a year.
- The income tax relief is withdrawn if the shares are disposed of within three years.
- Gains on the disposal of EIS shares are exempt unless the income tax relief is withdrawn.
- The CGT exemption may be restricted if an investor does not get full income tax relief on the subscription for EIS shares.
- Losses on the disposal of EIS shares are allowable. The amount of the capital loss is restricted by the amount of the EIS income tax relief still attributable to the shares disposed of.
- A capital loss arising on the disposal of EIS shares can be set against income.
- Gains arising on disposals of any assets can be deferred against subscriptions for shares in any EIS company.
- Shares do not have to have income tax relief attributable to them in order to qualify for deferral relief.
- The gain will become chargeable in the tax year when the subscription shares are disposed of.
- There is no upper limit on the amount of deferral relief available to an individual although there is a limit on investment in a single company or group of companies.