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Date of publication: September 2012

Overview:

EIS Tax relief is designed to encourage investment in small high risk companies.

• 30% income tax relief for investor, for investments between £500 and £1million (£500,000 prior to April 2012);
• Relief can be carried back to previous tax year;
• Shares can be sold, after a qualifying period, free of Capital Gains Tax and shares will normally qualify for relief from inheritance tax too. (The qualifying period is normally 3 years from date of investment or, if trade began later, 3 years from commencement of trade);
• Capital losses on disposal of shares can be offset against income;
• Other capital gains can be deferred by investment in EIS shares.

Rules for the company:

• Cannot be controlled by any other company;
• Cannot be quoted on the stock market;
• Gross assets must be less than £15 million before the investment and less than £16 million after the investment;
• Must have fewer than 250 full time employees;
• Must be a trading company, carrying out a qualifying trade, or the parent company of a trading group;
• Non-qualifying trades include dealing in land, receiving royalties, certain high asset backed businesses as well as certain professional services;
• Does not have to be resident in the UK, but the trading activities funded by the investment must be “wholly or mainly” in the UK;
• Maximum capital raised under EIS and similar tax favourable schemes must not exceed £5 million in any 12 month period;
• Companies can apply to HMRC for assurance that they qualify.

Rules for the individual:

• Maximum investment is 30% of share capital. Shares held by associates (close family or business partners) are included;
• Cannot be a director or employee of the company (an exception is available in certain situations for an unpaid director);
• It is possible to make an EIS investment through a Fund in order to reduce risk, or through a nominee.

SEIS (Seed Enterprise Investment Scheme):

• Available to very small start-up companies
• less than 25 employees,
• assets up to £200,000;
• The investor gets 50% of the amount invested as income tax relief;
• Maximum investment £100,000 per investor;
• Maximum company can raise is £150,000; and
• Investors can be company directors but can’t own more than 30% of the company.