The Enterprise Investment Scheme is a type of scheme that many individuals may decide to invest in. In general, venture capital schemes offer tax relief to UK individuals. It encourages them to invest in companies and social enterprises. These companies and enterprises are not on any recognised stock exchange. The schemes that are out there that you can take part in are:
- Enterprise Investment Scheme -the term that we use for this is EIS
- Seed Enterprise Investment Scheme -the term that we use for this is SEIS
- Social Investment Tax Relief -the term that we use for this is SITR
You can invest directly in a company or enterprise that qualifies by using a venture capital scheme. Please note, you will need to make sure that you meet the conditions for investors. Also, the company or enterprise will need to meet the conditions for the scheme.
The Enterprise Investment Scheme Relief needs reporting on your Self Assessment Tax Return. It is possible to overlook this and I detail amongst my other common Self-Assessment tax errors. Two more common errors that can be easily missed off your Self Assessment tax return are UK child benefit and student loan repayments.
The Enterprise Investment Scheme overview
The EIS scheme aims to help smaller, higher-risk companies raise finance by offering tax relief on new shares in companies that qualify. From the investor’s point of view, this is a tax-efficient way to invest in small start-up companies. What’s more, a relief of £1,000,000 per person per year is available in qualifying companies (£2 million for knowledge-intensive companies).
Furthermore, the EIS scheme is very attractive. To explain, this is because there is a ‘carry back’ feature. In turn, this means that you can apply investments to the prior tax year.
Tax relief and exemption
Income Tax Relief
The Enterprise Investment Scheme allows you to claim tax relief of 30% on investments up to £1,000,000 in any one tax year. It gives a max tax reduction in a tax bill (this assumes that your tax bill is this high) in any one year of £300,000.
What’s more, EIS allowances are for individuals. A married couple could invest up to £2 million each tax year, and it would entitle them to tax relief up to this amount. Also, please note you must hold the shares for at least three years from the date of issue, or HMRC will withdraw the tax relief.
Please note, people who are connections of the company (this is in terms of employment or financial interest) that is offering the investment are not entitled to Income Tax Relief on their shares.
Capital Gains Tax (CGT) exemption
Please take note, any gain is Capital Gains Tax free, and this is providing that:
- you hold the shares for at least three years; and
- you claim the income tax relief on them
A further thing to think about here is you can hold the shares for a longer time. It will then potentially allow you as the investor to accrue their CGT exemption over a longer period, which can be a great attraction.
Some more reliefs are available for losses and CGT deferral. Please take a look at HMRC’s guidance for further info on these areas.
Carry back and claiming tax relief
Please note, there is a ‘carry back’ feature that is available when an individual invests via the EIS. The feature will allow you to treat all or part of the cost of shares that are you acquire in one tax year as though you acquired those shares in the prior tax year. Relief is then given against the Income Tax liability of that prior year, rather than against the tax year in which you bought those shares. Also, this is subject to the overriding limit for relief for each year.
Claiming for your tax relief
An investor who makes an investment via an Enterprise Investment Scheme can claim relief once the company sends it through an EIS3 form. You can make your claims through the Self-Assessment tax return for the tax year during the share issue.
If you would like more detail and info on the EIS scheme, please visit the HMRC website article:
As a final note, although the Enterprise Investment Scheme is not suitable for all if you have savings that are not earning a good interest rate, this is one option that you could consider. What’s more, the tax relief is attractive and can save you a fair amount of tax, but this does depend on your earnings. As a final thought, you will, of course, need to do your detailed research yourself before investing in any company. You should also look at how your investment might perform in the future.
Link to Contractor Advice UK group on