The Enterprise Investment Scheme (EIS) was created by the UK government to encourage investment into startups and early-stage businesses.
EIS Tax Benefits for Investors
30% Income Tax Relief
You can claim back up to 30% of the value of your investment in the form of income tax relief. For example, if you make an investment of £100,000 you can save £30,000 in income tax.
Applying Tax Relief to a Previous Year
As an investor, you can carry back and treat your investment as having been made in the prior tax year, in whole or in part, such that 30% tax relief is available against tax paid or payable for that year, given you haven’t reached the limit of £1m EIS shares purchased in that year. You must hold the shares for a minimum of 3 years to retain the tax reliefs.
Tax Free Capital Gains
If you hold the shares for at least 3 years, then any gains are exemption from Capital Gains Tax.
If you lose money on your investment, you may claim loss relief. The combination of income tax relief and loss relief provides a total tax relief of up to 61.5%. A loss can be offset by individuals income in the tax year of the loss, or the previous tax year. Losses may also be offset against capital gains, including those that arise on the revival of any deferred gain.
100% Inheritance Tax Emption
You can claim Inheritance Tax relief of 100% after two years of holding EIS shares. This means that any liability for Inheritance Tax is reduced or eliminated in respect of such shares. However, this relief is not available if the shares are listed on a recognised stock exchange.
Please note that tax relief is dependent upon an individual’s personal tax circumstances, so please be sure to get independent tax advice. If the companies lose their EIS status or become non-compliant then tax reliefs may be withdrawn and will have to be repaid.
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“Mark was our first investor, and incredibly helpful in the early days of Paddle. He and his team assisted and advised with our initial structure, first hires, office space and iterating on our business model until we hit product market fit. The hands-on support we had from Mark at an early stage is one of the factors that has enabled us to now scale Paddle so quickly.”
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