What is EIS?
The Enterprise Investment Scheme (EIS) was designed by the UK Government in an effort to enhance investment in UK-based startups and SMEs.
The scheme provides generous tax benefits to eligible individual investors when they invest in companies that qualify for EIS tax relief.
These include 30% Income Tax Relief and exemption from Capital Gains Tax, if shares are held for 3 years. This guide provides a brief summary of the main tax benefits associated with EIS. Please visit our resources page for more comprehensive guides.
EIS Tax Benefits
Income Tax Relief
Eligible investors in an EIS qualifying investment will be eligible for 30% income tax relief.
If you invest £10,000 in an EIS qualifying investment you may receive £3,000 income tax relief, assuming your annual tax liability is £3,000 or more.
| Income Tax Relief | |
|---|---|
| EIS Investment | £20,000 |
| 30% Income Tax Relief | £6,000 |
| Net Investment | £14,000 |
Loss Relief
If shares in a company are sold for less than they are purchased for, investors may receive up to 45% Loss Relief for their loss, after any income tax relief. For example, £20,000 is invested in a company which subsequently fails meaning shares hold no value.
The investor would have received £6,000 income tax relief meaning their effective loss is £14,000. Assuming the investor pays the additional rate of tax at 45%, they would receive Loss Relief of 45% x £14,000 = £6,300.
After receiving Loss Relief and taking into consideration £6,000 Income Tax Relief, the investor’s loss on the original £20,000 would be £7,700.
You claim Loss Relief at your Marginal Tax Rate, higher rate tax payers will claim Loss Relief at 40%.
| Company Value Doubles | Company Value Even | Company Value Zero | |
|---|---|---|---|
| EIS Investment | £20,000 | £20,000 | £20,000 |
| 30% Income Tax Relief | -£6,000 | -£6,000 | -£6,000 |
| Net Investment | £14,000 | £14,000 | £14,000 |
| Proceeds on Sale | £40,000 | £20,000 | £0 |
| 45% Loss Relief | n/a | n/a | -£6,300 |
| Capital Gains Tax | nil | nil | n/a |
| Net Return after Tax Relief | £26,000 | £6,000 | -£7,700 |
This table is an example only. Please consult a tax professional before investing.
Capital Gains Tax Exemption
Eligible investors in an Enterprise Investment Scheme qualifying investment may pay no capital gains tax on disposal if held for 3 years or more.
Capital Gains Tax Deferral
If an individual has achieved Capital Gains in excess of the annual Capital Gains Tax (CGT) limit, they are able to defer any CGT tax by investing in an EIS qualifying company. The tax liability is then deferred until the EIS shares are disposed of. Inheritance Tax Exemption EIS investments are 100% exempt from inheritance after being held for just two years at the time of death.
EIS Tax Benefit Comparison
| Maximum Allowance | Income Tax Relief | Tax-Free Dividends | IHT Relief | Loss Relief | CGT Relief or Deferral | |
|---|---|---|---|---|---|---|
| EIS | £2,000,000* | 30% | No | 2 Years | Yes | Deferral |
| SEIS | £200,000 | 50% | No | 2 Years | Yes | 50% Relief |
| VCT | £200,000 | 30% | Yes | No | No | No |
*Enterprise Investment Scheme limit raised to £2m if investment is made in knowledge intensive companies
EIS Tax Benefits Summary Guide
Download our Enterprise Investment Scheme Tax Benefits Summary Guide to refer back to.
This guide provides a brief summary of the main tax benefits associated with EIS. Please visit our resources page for more comprehensive guides.
Please read the High Net Worth Individual Statement or Sophisticated Investor Statement before completing downloading this guide.
