EIS Tax Relief
Overview of the Key Aspects of EIS Tax Relief:
Income Tax Relief
- You can claim income tax relief of up to 30% on your investment.
- For example, a £100,000 investment could potentially result in a saving of £30,000 on your income tax bill.
- To qualify for this relief, you must have adequate income tax liability and hold the shares for a minimum of three years.
Generous Contribution Allowance
You can invest up to £1 million per tax year in EIS, or up to £2 million if the amount above £1 million is invested in knowledge-intensive companies.
Carry-Back
If you have sufficient allowance, you have the option to "carry back" the tax relief, offsetting it against the previous year's tax bill. This may allow you to reclaim taxes already paid.
Tax-Free Growth
When you realise EIS shares, you typically do not incur capital gains tax (CGT), provided you have claimed income tax relief on the shares and the companies still qualify for EIS.
Capital Gains Deferral
By investing your taxable gains in an EIS-qualifying investment, you can defer the capital gain for as long as the funds remain invested and the EIS conditions are met.
You can defer gains of any size made up to three years before or one year after the EIS investment. Even if you have already paid the tax, you can still defer the gain.
Once you withdraw your investment, the gain becomes taxable again, at the prevailing CGT rate. Alternatively, you can reinvest in another EIS to continue deferring the gain.
Inheritance Tax Relief
An investment in an EIS-qualifying company may be eligible for 100% relief from inheritance tax, provided it is held for a minimum of two years until the time of death.
Loss Relief
In case of adverse outcomes, you can choose to offset any losses against your income tax bill, after deducting the income tax relief already received. For instance, an additional-rate taxpayer could potentially reduce a total loss of £1 to 38.5p. Please see more on loss relief below.
EIS Overview
Since its inception in 1994, the Enterprise Investment Scheme (EIS) has been instrumental in raising over £24 billion across more than 30,000 small businesses.
Investing in small companies inherently carries risks and uncertainties. While some companies may thrive exceptionally well, others may face challenges or even fail.
The government’s tax incentives serve as a valuable safeguard against the risks associated with EIS investments. These incentives help mitigate the impact of underperforming investments and amplify the benefits of successful ones.
However, it’s essential to be aware that tax regulations can change, and the specific benefits of EIS tax relief may vary depending on individual circumstances.
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