Enterprise Investment Schemes (EIS)
Enterprise Investment Scheme (EIS) relief can be a useful tool for clients that have UK Income tax or Capital Gains tax liabilities.
The relief is a government plan used to channel capital into qualifying small business in the UK and offers a number of tax reliefs.
Income tax relief of 30% is available on investment amounts of up to £1,000,000 per person in any tax year, giving a maximum tax reduction of £300,000.
The shares in a qualifying company need to be held for at least 3 years for the relief to be retained. There is also no capital gains tax applicable on the shares held if retained for the required 3 years.
Due to the size of the companies that are being invested in, these types of investments come at a higher level of risk that needs to be understood and quantified as part of a wider asset base.
If the shares are disposed of at a loss, the investor can elect to offset the amount of the loss (less any initial income tax relief received) against income in the year of disposal.
If a client does not have the time to source the investment opportunities directly, there are a number of off-the-shelf investments available, many of which are packaged together and offer diversification across a number of businesses and sectors.
Seed Enterprise Investment Schemes (SEIS)
Seed Enterprise investment Schemes work in the same way but are designed to support smaller businesses with 25 or less employees and gross assets of under £300,000 who have recently incorporated.
Investors can receive initial income tax relief of 50% of investment amounts up to £100,000 per tax year into a qualifying investment.
Again the investment needs to be held for 3 years and the gains are not subject to Capital Gains Tax.
In the event of the company folding and the shares have no value, the loss (less any initial income tax relief received) can be offset against income tax. This means that if you are a 45% tax payer, and you make an investment of £10,000, due to the tax relief your total loss will be £2,750 if the company fails.