EIS Investing
The Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme (EIS) is a UK government initiative designed to help smaller, higher-risk companies raise finance by offering a range of tax reliefs to investors who purchase new shares in these companies. It’s an attractive scheme for investors seeking opportunities in emerging companies, while also providing significant tax advantages to mitigate investment risks.
Benefits at a glance:
- Up to 30% tax relief – save up to £300,000 on your income tax bill
- Tax-free growth
- Capital gains tax deferral
- Loss relief
- IHT free
Qualifying Companies
To qualify for EIS, companies must meet specific criteria, such as being a UK-based company, not listed on a recognised stock exchange, and having gross assets of no more than £15 million before the investment and fewer than 250 employees.
The Advantages of Early-Stage Investments
By entering at an early stage, you stand to gain more as a shareholder if the business experiences significant growth. It’s important to bear in mind, though, that investments in early-stage businesses, particularly those qualifying for the Enterprise Investment Scheme (EIS), carry a high risk.
Benefits
EIS Tax Relief Overview
Income Tax Relief of up to 30%
For example, a £100,000 investment could lead to £30,000 in income tax savings, subject to sufficient income tax liability and a minimum holding period of three years for the shares.
Investment Limits
The maximum investment eligible for tax relief is £1 million per tax year, which can increase to £2 million if the excess over £1 million is invested in knowledge-intensive companies.
Carry Back Option
Investors have the option to ‘carry back’ their investment to the previous tax year. This allows you to apply the tax relief to that year’s tax bill, which can be particularly beneficial if you had a higher tax liability in the previous year.
Capital Gains Tax Exemption
If you hold the shares for at least three years, any profit you make when selling the shares is exempt from Capital Gains Tax.
Capital Gains Deferral
Reinvesting gains from other assets into an EIS can defer CGT, provided EIS conditions are met.
Inheritance Tax Relief
EIS investments are generally free from Inheritance Tax after two years of holding the shares.
Loss Relief
If the investment fails, losses can be offset against income tax, minus the received income tax relief. An additional-rate taxpayer could effectively reduce a total loss of £1 to 38.5p
Seed Enterprise Investment Scheme (SEIS) tax reliefs in the UK
SEIS is designed to encourage investment in very small, early-stage companies by offering attractive tax reliefs to investors. These companies will have less than three years of trading history and up to 25 employees. Key benefits for investors include:
- Up to 50% tax relief – save up to £100,000 on your income tax bill
- Tax-free growth
- Capital gains tax deferral
- CGT reinvestment relief
- Loss relief
- Inheritance tax relief
Income Tax Relief: Investors can claim up to 50% income tax relief on their investment. This is higher than EIS and reflects the higher risk associated with earlier seed investments. For instance, if you invest £20,000 in a qualifying SEIS company, you can reduce your income tax liability by £10,000 in that tax year.
Investment Limits: Individual investors can invest up to £200,000 in an SEIS business per tax year.
Capital Gains Tax (CGT) Exemption: Similar to EIS, if you hold the shares for at least three years, any profit on the sale of these shares is exempt from Capital Gains Tax.
CGT Reinvestment Relief: If you have a capital gain from other investments, you can reinvest that gain into a SEIS-eligible company and receive a 50% exemption from CGT on that reinvested amount.
Loss Relief: If the SEIS-qualifying company fails, investors can claim loss relief. This relief allows you to offset the loss against either your Income Tax or Capital Gains Tax, further reducing the net investment risk.
Inheritance Tax Relief: Investments in SEIS-qualifying companies are generally free from Inheritance Tax after two years, similar to EIS.
Investment Limits: The maximum investment eligible for SEIS tax relief in a tax year is £200K each in any one tax year (up from £100K in July 2023) which is lower than EIS, reflecting the scheme’s focus on smaller, seed-stage investments.
Company Criteria: To qualify for SEIS, companies must be trading for no more than two years, have assets of no more than £350K in gross assets to qualify (up from £200K Since July 2023) and have fewer than 25 employees at the time of the investment.
SEIS is particularly attractive for investors looking to support startups and early-stage businesses in the UK, offering significant tax incentives to mitigate the inherent risks of such investments.
Comparing EIS and SEIS Tax Reliefs
| Scheme | Max Investment | Income Tax Relief | CGT Relief/Deferral | Dividends | Tax free Growth | IHT Relief | Loss Relief |
| EIS | £2,000,000* | 30% | Deferral | No | Yes | After 2 yrs | Yes |
| SEIS | £200,000 | 50% | 50% Relief | No | Yes | After 2 yrs | Yes |
*Over £1 million must be in knowledge-intensive companies.