Resources List
UNDER EIS Tax Relief
Two ways to invest in EIS
Investors looking to purchase shares in companies that qualify under the Enterprise Investment Scheme (EIS) have two main options in terms of strategy and structure for their investment.
1) Direct investment in a single company
The most straightforward method of investing in an EIS is by choosing a specific company to back. This requires investors to conduct their own research and due diligence, which can be time-consuming and demands a good understanding of the market.
2) Using a specialist manager
Alternatively, investors can opt to invest through a specialist manager, who pools funds from multiple investors to create a portfolio of EIS-qualifying companies.
A specialist manager brings several advantages, such as continuous monitoring of the companies in the portfolio, the possibility of influencing board-level decisions (if the manager is significant enough to secure a board position), and expertise in negotiating favourable exit strategies.
Types of investment via specialist managers
Investments through specialist EIS managers can be structured in two ways:
- Unapproved EIS portfolios/funds
- Approved Knowledge Intensive EIS portfolios/funds
The primary distinction between the two lies in the timing of when tax reliefs can be claimed.
Conditions for approved EIS funds
For an EIS fund to be treated as ‘approved’ by HMRC, it must meet certain criteria:
- 80% of the funds must be invested in knowledge-intensive companies within two years.
- 50% of the capital must be deployed within 12 months of the fund’s closing, with an additional 40% invested within the following 12 months (totalling 90% within two years).
NB: Although referred to as "funds" in tax regulations, EIS investments differ from mutual funds or collective investment schemes. An investor in an EIS fund directly owns shares in the underlying companies, not shares or units in a pooled investment.