Gannons Solicitors 020 7438 1060
London solicitors specialising in the law relating to employment, partnerships/LLPs and company commercial
Enterprise investment scheme (EIS) is a business expansion scheme introduced to encourage equity investment in new and small companies. The enterprise investment scheme (EIS) offers generous income tax and capital gains tax reliefs to investors in certain companies. Our specialist tax solicitors advise investors and companies on how to achieve EIS status and maintain status during the life of the investment.
back to topThe tax benefits
Taxpayers can benefit from:
The income tax deduction is given at the rate of 20% on the amount invested, up to a maximum annual investment of £500,000, provided that the shares are held for at least 3 years.
Unlimited deferral relief from capital gains tax is available where gains (including gains on shares) are invested in newly issued eligible shares. The investment in eligible shares must occur within the period beginning one year before and ending three years after a gain is realised. The gain is then postponed and becomes chargeable only on the occurrence of one of several specified events, e.g. on the disposal of the EIS shares.
back to topQualification
In order for its investors to be able to claim and keep the EIS tax reliefs relating to their shares, the company which issues the shares has to meet a number of rules regarding the kind of company it is, the amount of money it can raise, how and when that money must be employed for the purposes of the trade, and the trading activities carried on. The company must satisfy HMRC that it meets these requirements and is therefore a qualifying company. The qualifying conditions are similar to those applying to companies granting enterprise management incentive options (EMI).
Broadly, a company's shares will be eligible for the EIS if it is an unquoted trading company with gross assets (including subsidiaries' gross assets) not exceeding £7 million, and its trade (or a substantial part of its trade) does not consist of one or more excluded activities. These include dealing in land, banking, financial services, leasing and legal and accountancy services.
Conclusion
EIS offers generous tax reliefs therefore independent individuals and corporate investors are only likely to participate in venture capital/development capital funding if EIS is available. Investors should be aware that the tax relief can be taken away in certain circumstances including where the company ceases to be a qualifying company during the three year period from the date of issue of the shares.
This paper is designed to provide a summary of the issues addressed. Therefore, it is not intended as a detailed commentary on the relevant law and any comments made should not be acted upon without first taking specific legal advice.