Enterprise Investment Scheme (EIS)
This scheme is designed to encourage investors to SUBSCRIBE for new shares in UNQUOTED TRADING COMPANIES.
On condition that:
- The investor has SUBSCRIBED for new shares.
- The company is an UNQUOTED TRADING COMPANY.
- The investor is NOT an EMPLOYEE / DIRECTOR of the company.
- The investor owns <30% of the shares.
Then INCOME TAX and CAPITAL GAINS TAX reliefs apply.
INCOME TAX RELIEF (EIS)
INCOME TAX RELIEF = AMOUNT SUBSCRIBED FOR x 30%
THE RELIEF is in the form of a TAX REDUCTION to the INCOME TAX LIABILITY.
The MAXIMUM annual EIS investment is £1 MILLION.
The MAXIMUM annual tax reducer is therefore £300,000.
The INCOME TAX RELIEF is WITHDRAWN if the individual does not hold the shares for a mininum of 3 years.
CAPITAL GAINS TAX RELIEF
If EIS qualifying shares are held for 3 YEARS then CAPITAL GAINS are EXEMPT.
CAPITAL LOSSES are ALLOWABLE.
EIS Reinvestment Relief
This is another way of encouraging investment into EIS qualifying shares.
If an individual has CAPITAL GAINS that would otherwise give rise to CAPITAL GAINS TAX, the individual can REINVEST the proceeds in qualifying EIS shares and DEFER any amount of the CAPITAL GAIN.
The DEFERRED GAIN is the LOWER of:
- The GAIN
- The AMOUNT INVESTED in EIS shares.
The deferred gain is NOT deducted from the base cost of the shares but FROZEN and becomes chargeable when:
- The EIS shares are disposed of OR,
- The individual becomes UK NON-RESIDENT within 3 YEARS of the issue of shares.
The DEFERRED GAIN is only ever DEFERRED. But any GAIN on the EIS shares invested in will become EXEMPT if held for 3 YEARS.