Tax advisor Jonathan Barrett from Moore Stephens introduces the incredible advantages to be had from Enterprise Investment Scheme tax relief – a scheme that helps smaller companies secure funding and rewards their investors
The Enterprise Investment Scheme (EIS) was introduced to promote new enterprise and to encourage investment in small businesses. The scheme is designed to help smaller, higher-risk companies raise finance by offering a range of generous tax reliefs to investors who purchase new shares in qualifying companies. For unquoted companies looking to raise funds, obtaining approval through the EIS can help to attract investors. For the investor, it’s a tax efficient way to invest in small companies. Investors can put up to a total of £1m into qualifying EIS investments each year and benefit from up to five different tax reliefs:
1. Income Tax Relief
Provided the qualifying shares are held for at least three years, an individual can reduce their tax liability by up to 30% of the amount invested (50% under the SEED EIS Scheme designed for smaller companies).
2. Capital Gains Tax
No capital gains tax is payable on the disposal of the qualifying shares as long as they are held for three years (or longer) after the trade has commenced. This can result in a significant tax saving for the investor in a successful company.
3. Capital Gains Tax Deferral Relief
There are also potential capital gains tax savings on the realised gains of a different asset. The gain can be deferred for as long as the EIS qualifying shares are held (or even indefinitely).
4. Loss Relief
If the qualifying shares are disposed of at any time for a loss (after taking into account income tax relief) the loss can be offset against the investor’s capital gains tax or income tax in the year of disposal or previous year.
5. Inheritance Tax Relief
There is a good chance that two years after investing in the EIS shares they will qualify for Business Property Relief for inheritance tax purposes. If so, this can have a significant impact on (or even eliminate) the inheritance tax payable in respect of the shares. Whether you’re an individual looking to make an investment, or a company looking to raise funds, Moore Stephens can help. We can advise on the qualifying criteria for companies wishing to gain approval under the Enterprise Investment Scheme and help you complete the relevant application with HMRC.
Moore Stephens 01733 397300, www.moorestephens.com