Enterprise Investment Scheme ("EIS") - The Facts

Enterprise Investment Scheme (EIS) - Introduction & EIS Relief

Background

The Enterprise Investment Scheme (“EIS”) is a venture capital relief. It is designed to provide investors in smaller, growth companies with attractive tax incentives where they invest in qualifying shares and meet a myriad of other conditions and requirements.

Overview of EIS Reliefs

The reliefs include:

1. Income Tax Relief– this is in the form of a tax reducer which is 30% of the total qualifying investment (up to an annual £1m for ‘general’ EIS investments or £2m if a Knowledge Intensive Company);
2. Capital Gains Tax Exemption- If the shares qualify (and remain so until the ‘terminiation date – usually 3 years) then any gain is exempt for capital gains tax purposes;
3. Capital Gains Deferral Relief – A gain on the disposal of any type of asset can be ‘deferred’ by reinvestment in EIS qualifying shares. The original gain is generally deferred until the sale of the EIS shares.

The first two of these reliefs are closely linked. You will only get one with the other.  Capital gains deferral reliefs is something of a standalone relief and can be obtained in circumstances where the first two cannot.

These reliefs are highly attractive. However, this is not pure altruism from the Government. The quid pro quo is very much that these are high risk investments.

Don’t put the tax tail ahead of the investment dog. As investment dogs can be put down.

EIS is the older sibling of Seed EIS which provides similar reliefs for very small, early stage companies.

EIS Facts & Figures

Here are some facts and figures on the development of EIS:

• launched in 1993/94, 29.7k companies have raised investment of £20bn+
• In 2017-18, 3.9k companies raised a total of £1.9bn of funds.
• £759m of investment was raised by the 1,710 companies raised for the first time.
• 33% of all EIS investment raised in information and communication sector
• London & South East accounted for the largest proportion (67% of EIS investment)

Further articles on the Enterprise Investment Scheme / EIS

• Overview of EIS income tax relief and capital gains tax exemption
• Risk to Capital Condition
• Qualifying shares
• Qualifying investor
• Qualifying company
• General requirements
• Knowledge Intensive Companies (“KICs”)
• Withdrawal of income tax relief and capital gains tax exemption
• EIS CGT exemption relief and loss relief

If you have any queries about the Enterprise Investment Scheme / EIS, whether as a potential investee company or investor, then please do get in touch.

Albeit, we can’t give you investment advice as we are not regulated by the Financial Conduct Authority – so please get that type of advice from someone who is!