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Enterprise Investment Scheme


In the current economic climate, the tax incentives offered by EIS are too attractive to overlook.  Encouraging investment in smaller, higher risk trading companies is a key objective for the Government and, with the revamped EIS limits and the new Seed EIS, it is aiming to put its money where its mouth is.

The table at the bottom of this article summarises the main tax benefits available to EIS and SEIS investors.

Seed EIS Relief

This is so generous that even if an investment is written off, a taxpayer who is able to take full advantage of all the potential tax reliefs will be marginally better off as a result of the investment.  In fact, the available relief would equal approximately 103% of the investment.

However, it is also considerably more limited than normal EIS.  Companies will only qualify for SEIS investment if they have fewer than 25 full time employees and gross assets of no more than £200,000.  Also, the overall limit for SEIS investments (per company) is only £150,000.

EIS Relief

The headline restrictions on EIS investments are now considerably more generous than they were thanks to changes which took affect for shares issued on or after6 April 2012:

  • The limit on the number of employees has been increased to <250 full time employees (previously <50).
  • Companies with gross assets not exceeding £15 million now qualify (£16 million post-investment).  Previously this was £7 million (£8 million post-investment).
  • The limit on total EIS investments in any particular tax year has increased from £2 million to £5 million.

The Devil in the Detail

The chief obstacle to all EIS investors, however, is complexity. 

Bearing in mind the generosity of the tax breaks, it is understandable that the Government wishes to impose strict limits on what qualifies.  Unfortunately, though, this means investors relying on EIS relief can often be disappointed, sometimes on seemingly arbitrary grounds.

Underneath some of the headline limits summarised above, lie more obscure restrictions.  These cover matters such as how and when the funds are used, the relationship between the particular investor and the company, the business activities of the company and receipt of value from the company. 

Investors can gain some comfort from the requirement that the company applies to HMRC for permission to issue a certificate to investors wishing to claim EIS relief but this is limited to the status of the company at that time plus the investor has no guarantee that HMRC is aware of all material facts about the company.

Anyone relying on EIS relief without professional advice does so at his or her peril.

EIS and SEIS: Key Tax Benefits

 

Tax benefits

 

EIS

Seed EIS

Income tax relief

30% of investment (up to £1m)

50% of investment (up to £100k)

 

Capital gains tax relief

 

Full exemption on investment

Full exemption on investment

Capital gains deferral

Deferral of gains on other assets

No deferral 

 

Additional capital gains tax exemption

N/A

Exemption on reinvested gains on other assets (2012/13 only)

As always, Lupton Fawcett Lee & Priestley are on hand to offer advice so please contact Melanie List on 0113 2802065, via e-mail melanie.list@lf-lp.com or please write a comment below.

Please note that this article contains information and does not constitute advice on any specific matter. Whilst Lupton Fawcett LLP endeavours to ensure that the content is accurate and up to date, it should not be construed or regarded as legal advice. By reading this you confirm that you have not relied on any such content.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.