Enterprise Investment Scheme and Seed Enterprise Investment Scheme: Tax relief for investors
Tax relief is available to investors in small higher risk companies through the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).
These reliefs are very valuable and can save investors significant amounts of tax.
The key requirements for those companies wishing to attract investors are set out below and over the page is a comparison of the main reliefs available to investors in qualifying EIS/SEIS companies.
Tax reliefs available under both EIS and SEIS can be withdrawn or reduced in certain circumstances.
How much can I invest in an EIS/SEIS company?
The maximum annual investment by an investor in an EIS company is £1m. The maximum investment an investor can make in a SEIS company is £100,000.
Companies that qualify for EIS investment must meet a number of requirements. In particular, the company must:
- Be unquoted at the time shares are issued.
- Have fewer than 250 full-time employees (or part-time equivalent) or 500 employees for knowledge-intensive companies. If in a group, this will apply to the group as a whole.
- Have gross assets of £15m or less immediately before the investment and £16m immediately afterwards.
- Carry on a qualifying trade which includes most trades but specifically excludes dealing in land, shares or commodities, property development, farming, the operation or management of hotels or nursing homes, financial activities and leasing.
- Not be a 51% subsidiary of another company or under the control of another company.
- Exist for genuine commercial reasons and not be part of a scheme for the avoidance of tax.
- Issue shares within either seven years of the date of the first commercial sale, or 10 years if it is a knowledge-intensive company (subject to some exceptions).
- Not raise more than £12m (£20m if it is a knowledge intensive company) in total investments (ender EIS, VCT, SEIS, SITR or other tax schemes). This tax limit is tested at the time of the share issue and on a group basis.
The company (or group if the company is the holding company of a trading group) cannot raise more than £5 million through EIS investments over a 12 month period.
Companies that qualify for SEIS investments must meet a number of requirements, many of which are similar to those referred to above for EIS companies. However, there are a few differences. SEIS companies must:
- Have fewer than 25 full-time employees (or part-time equivalent). If in a group this will apply to the group as a whole.
- Have gross assets of £200,000 or less immediately before the investment.
- Carry on a qualifying trade which in addition to those referred to above excludes shipbuilding and coal and steel trades, receiving royalties and licence fees and feed-in tariffs.
The company (or group if the company is the holding company of a trading group) cannot raise more than £150,000 through SEIS investments.
Tax reliefs for EIS & SEIS Investors Compared
|Income Tax Relief||30%* of sum invested||50%* of sum invested|
|Capital Gains Tax (CGT)||No CGT if shares held for 3 years||No CGT if shares held for 3 years|
|Reinvestment relief period||Available on EIS shares acquired 1 year before or 3 years after disposal of the relevant asset||50% for 2013/14 and 2014/15|
|Tax relief for losses||Yes||Yes|
*Relief can be clawed back if the shares are not held for 3 years
We can advise you on any EIS/SEIS investments to ensure your investment qualifies for relief and can deliver this advice on a fixed fee basis.