Enterprise Investment Scheme (EIS) Tax Relief

The Enterprise Investment Scheme (EIS) provides a tax efficient way to encourage investment into smaller unlisted companies. EIS is intended to help these small companies raise finance by allowing tax relief on new shares.

  • Investor can put in up to £1,000,000 per tax year
  • Investor receives 30% income tax relief
  • Tax free exit after 3 years

What EIS tax relief is available?

EIS relief is available both when an investment is made, and when it is realised.

On subscribing for shares in an EIS qualifying company, income tax relief is given at 30% of the amount subscribed. The relief is offset against income tax otherwise payable for the tax year in which the investment is made, or for the previous tax year.

To benefit fully from EIS relief, the shares must normally be retained at least until their “termination date”- which in most cases is three years after the shares are subscribed for. After the termination date, and provided there has been no breach of EIS rules in the meantime, any gain on selling the shares is completely tax exempt.

EIS Relief Example 1

In May 2015 Nick subscribes £100,000 for EIS qualifying shares in Electric Bananas Limited, a software development company. Five years later Electric Bananas is taken over and Nick receives £250,000 for his shares.

In the 2014/15 tax year, Nick had paid income tax of £25,000, which he was able to reclaim in full with EIS relief on his investment. And there was a balance of £5,000 available to offset against Nick’s 2015/16 tax. EIS tax relief meant that the net cost of Nick’s investment was £70,000.

Nick’s gain on selling his shares is entirely tax free.

But not all investors are as fortunate as Nick. However, even if an investment fails, EIS relief can help to soften the blow.

Are you looking for specific EIS or SEIS advice or help?

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