Tax-efficient investing
The Enterprise Investment Scheme
What is an EIS/SEIS?
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are UK government schemes designed to encourage early-stage investment into smaller and younger UK companies by offering generous tax relief to the investor.
What tax relief is offered with EIS?
Income tax relief
Individual income tax relief of 30% on up to £1m invested per tax year (or £2m per tax year if £1m of this is invested in knowledge-intensive businesses).
Capital gains tax relief
Shares held for at least 3 years will be exempt from capital gains tax when you come to sell them. Existing capital gains can be reinvested into an EIS to defer capital gains tax to a later year.
Loss relief
If you make a loss on your investment, you can offset that loss against against either your capital gains tax bill or your income tax bill.
Inheritance tax relief
100% inheritance tax exemption provided the shares have been held for at least two years.
The importance of diversification
The volatile nature of investing in an EIS can mean that individual investments can be more susceptible to failure, given the typical size of companies receiving investment. Diversification across a variety of companies and sectors can help to insulate an alternative investment portfolio against individual losses, decreasing the overall risk of the portfolio. Further diversification is possible by spreading investment across different managers.
Example investment journey when investing £30,000 equally across 3 EIS companies
Company 1 fails
You receive £3,000 in income tax reliefYou receive £3,150 income loss relief(at risk capital multiplied by your tax bracket e.g 45%)Real loss = £3,850(£7,000 at risk capital minus £3,150 income loss relief)
Company 2 breaks even
You receive £3,000 in income tax reliefAfter three years you sell your shares for £10,000Gain = £3,000(£0 profit from sale, plus £3,000 income tax relief)
Company 3 doubles value
You receive £3,000 in income tax reliefAfter three years you sell your shares for £20,000You owe no capital gains tax on profitGain = £13,000(£10,000 profit from sale, plus £3,000 income tax relief)
How to claim EIS tax relief
A tax relief claim can be made after receiving an EIS 3 form (Enterprise Investment Scheme Certificate and claim to relief) from the company invested in. The company must have been trading for at least four months before they can issue this form.
To make the claim, investors will need the following information:
- The name of the company invested in
- The amount on which you are claiming relief for this year
- The date of issue of the shares
- The name of the HMRC office authorising the issue of the certificate
Company qualifying criteria
| SEIS | EIS | |
|---|---|---|
| Number of employees | No more than 25 employees | No more than 250 employees |
| Trading time | Trading for less than 2 years | Trading for less than 7 years (or less than 10 for knowledge-intensive companies) |
| Gross assets | Under £200k in gross-asset premoney | Under £15M in gross-asset pre-money |
| Funding limit | Lifetime SEIS funding limit of £150k. No previous investment from a VCT or EIS | Lifetime funding amount that can be raised under SEIS, EIS, VCT is £12M (£20M for knowledge intensive companies) |
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Important information
As with all investments, the offers shown on this site will place your capital at risk: investors may not get back the full amount invested. The investments listed are in unlisted companies which are likely to be harder to value and sell than quoted shares.
Please note that the availability of EIS and any other tax relief referred to is dependent on each investor’s circumstances. Tax reliefs are also subject to change and rely on the company in question meeting qualifying criteria.
Where reference is made to past performance or future performance please note that this should not be taken as a reliable indicator of future results. CoInvestor does not provide investment or tax advice, and information on this website should not be construed as such. Potential investors should seek specialist independent tax and financial advice before investing in any alternative investment.
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