Enterprise Investment Scheme (‘EIS‘)
EIS is designed to encourage investment in later-stage qualifying companies.
There is potential tax relief at a rate of 30% on the value of the investment. In addition, investors can defer a capital gains tax liability up to the value of a qualifying EIS investment until the EIS shares are sold.
Any gains made on a sale of shares subscribed for under EIS may also be fully exempt from capital gains tax liability if the shares are held for three years. So, gains on exit may be subject to 0% tax.
Loss relief is also accessible if the investment fails. So, a loss may be set off against income or other gains made by the investor.
Strict rules apply to prescribe when a company will qualify for an EIS investment, including with regard to the company’s balance sheet, trading activities and number of employees. There are also conditions with regard to the use of the sums invested and the age of a qualifying EIS company (no older than seven years usually, or ten years for a ‘knowledge intensive company’). Funds cannot be returned to the EIS investors within three years from the issue of the shares.
There are limits on the amounts a trading company can receive as EIS investments, both during a rolling 12 month period and over its lifetime.