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Enterprise Investment Schemes - (EIS)
Enterprise Investment Schemes are a relatively new type of investment introduced by the Government to encourage investment into smaller companies in need of additional finance as start-up capital or to expand the business.
As these companies tend to be relatively small and start-ups, these investments are in a higher risk bracket than ordinary investments into equities.
To encourage investment into these companies, major tax incentives and benefits were introduced with the investments. The Enterprise Investment Scheme offers a different and complementary set of tax breaks to those offered by VCTs particularly. The EIS scheme is now the only UK tax efficient scheme to offer Capital Gains Tax ("CGT") Deferral. The scheme also offers income tax relief at 30%, capital gains free growth and, through Business Property Relief, relief from Inheritance Tax ("IHT") if the shares are held for more than two years. *
It is important to remember that these are long term, illiquid investments, which carry a high risk of loss of capital and, as such, are only likely to be suitable for sophisticated, wealthy investors as part of a diversified portfolio.
Tax changes effective from 2012 onwards
From 6 April 2012, there are two schemes which you can use to achieve tax relief for investing in small unquoted companies: the seed enterprise investment scheme (SEIS) and the enterprise investment scheme (EIS). The tax relief given under each scheme remains unchanged for 2013/14:
- Rate of income tax relief: SEIS = 50%; EIS = 30%
- Annual maximum investment qualifying for income tax relief: SEIS = £100,000; EIS = £1,000,000
- Capital gains tax relief on investment: SEIS = 18% or 28%; EIS = deferred relief
- Both the company and the investor have to qualify in order to receive tax relief under SEIS or EIS
From 2012 onwards:
The annual amount a company can raise from EISs or VCTs increased from £2 million to £5 million.
So, with effect from 6 April 2012, the following major enhancements to the EIS came into effect:
- Annual amount a company can raise increased to £5 million.
- Gross Assets of a qualifying company increased from £7 million (£8 million after new money) to £15 million (£16 million after new money).
- Maximum number of employees of a qualifying company increased from 49 to 249.
The other major change is that individuals can obtain income tax relief on investment of £1 million per year, up from £500,000.
* Subject to meeting certain criteria
Enterprise Investment Schemes are complex investments and are not suitable for everyone. You should seek independent financial advice before entering into this type of investment.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change.
The value of investments and income from them may go down. You may not get back the original amount invested.
Some funds will carry greater risks in return for higher potential rewards. Investment in smaller company funds can involve greater risk than is customarily associated with funds investing in larger, more established companies. Above average price movements can be expected and the value of these funds may change suddenly.
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