Relief is available to a qualifying investor who subscribes in cash for qualifying shares in a qualifying company. The maximum EIS and SEIS investments in a tax year are £1,000,000 and £100,000 respectively, although it is possible to treat an investment as having been made in the previous tax year.
Qualifying shares are fully paid ordinary shares, not redeemable and generally without preferential rights to dividends or to assets on winding up of the company.
Most independent small and medium trading companies will qualify for EIS relief. But there are a number of trades which are excluded from relief, such as banking, insurance, leasing and property development.
SEIS qualifying companies are very small companies, which have carried on their trade for a maximum of two years.
HM Revenue & Customs offer companies an opportunity to seek “advance assurance” that a proposed issue of shares will qualify for EIS or SEIS relief. A prospective investor is entitled to ask if a company has received advance assurance and, if not, to consider whether the investment is unacceptably risky. Alternatively, there are a number of EIS and SEIS funds, which invest into qualifying companies on behalf of fund investors, and this may be a way of spreading risk through holding an investment portfolio.