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The Enterprise Investment Scheme was designed by the Government to provide investors with an incentive to invest in smaller unquoted companies.

The tax benefits of EIS are only available when new shares are bought. If the existing shares of an EIS-eligible company are bought on the secondary market then none of the tax breaks are available via EIS.

There are five current EIS tax reliefs:

  • Income tax relief
    Provided an EIS qualifying investment is held for no less than three years an individual can reduce their income tax liability by  30% of the amount invested. There is no longer a minimum investment level and the maximum per investor is £1,000,000 per annum. Individuals who have not used their EIS entitlement in the previous tax year can treat all or part of the cost of the investments as subscribed in that year, up to the maximum annual investment limit for the applicable year.
  • Capital Gains Tax Deferral Relief
    Tax on gains realised on a different asset can be deferred where the EIS investment is less than 12 months before or 36 months after the disposal of the asset. There is no minimum period for which the shares must be held. The deferred capital gain is brought back into charge whenever the shares are disposed of (or are deemed to have been disposed of under EIS legislation). Deferral relief is unlimited.
  • Capital Gains Tax Exemption
    No Capital Gains Tax payable on disposal of shares after three years provided the EIS initial income tax relief was given and not withdrawn on those shares.
  • Capital Protection
    If EIS shares are disposed of at any time at a loss, such loss less any income tax relief previously given, can be offset against the investor’s income in the year of disposal or the previous year. For gains offset against income tax, the net effect is to offer investment protection of 61.5p in the £1 for a 45% taxpayer. Alternatively, the losses can be offset against Capital Gains Tax at the prevailing rate of up to 28%.
  • Inheritance Tax Exemption – EIS Investments are generally exempt from Inheritance Tax after two years of holding the investment.

EIS Tax Breaks EIS Working Examples

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  • The level of tax treatment depends on your individual circumstance. Tax breaks exist under current legislation and are subject to change. EIS/SEIS approval cannot always be guaranteed, or on the assumption that EIS/SEIS relief is actually obtained, there is no certainty that companies will continue to qualify for such relief in the future. Investment in private companies carries a high risk: it is highly speculative and there is no recognised market for these shares. Investors in private companies must have no need for liquidity and must be able to withstand a total loss of investment. Past performance is not an indication of future performance and investments may go down as well as up. Private equity investment and certain investments offered by CSS Partners are not suitable for all investors.
    This document has been prepared and issued by CSS Partners LLP (“CSS Partners”) and has been approved for publication in the United Kingdom by Charles Street Securities Europe LLP (CSS) who are authorised and regulated by the Financial Conduct Authority in the UK. CSS Partners is an appointed representative of Charles Street Securities Europe LLP. This document is intended only to give background information on the subject of the report and is a marketing communication as contemplated by the FCA rules.
    In the preparation of this CSS Partners has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. This document is published for information purposes and is not to be construed as a solicitation or an offer to buy and sell any securities or related financial instruments. This document should not be regarded by recipients as a substitute for the exercise of their own judgement.
    Although all information contained in this document has been compiled from sources believed to be reliable, we do not guarantee its accuracy or completeness. The report is selective and does not purport to provide a complete survey of the subject.
    No obligation is accepted to provide any recipients with any additional information or to correct any inaccuracies which may become apparent. Any opinions, forecasts or estimates herein constitute a judgement as at the date of this report. There can be no assurance that future results or events will be consistent with any such opinion, forecasts or estimates. This information is subject to change without notice. Investors must make their own investment decision and not rely on this report.
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