Earlier in 2015 changes to the rules for companies raising capital through the enterprise investment scheme (EIS) were announced. What effect, if any, do they have on the availability of tax breaks for investors?
EIS risk and reward
Because of the generous tax breaks it offers, EIS and its predecessor schemes have been one of the government’s success stories. Originally schemes were aimed at direct investment by entrepreneurs, but inevitably the investment industry saw the opportunity to get on board. This has opened up EIS to small investors especially by offering portfolio schemes. These reduce the usual medium to high risk of EIS by spreading your money between a number of companies.
Finding an EIS
Chances to invest in EIS usually come and go quickly because they are popular and there’s a limit on the amount of cash companies are allowed to raise through the scheme. So you need to spot an opportunity quickly.
Tip. If you want to find EIS that are open for investment the Enterprise Investment Scheme Association ( EISA ) has a handy database
EIS tax breaks in a nutshell
Below is a summary of the direct and indirect tax breaks available when you invest in an EIS scheme.
- a 30% credit against your tax bill. For example, if you invest £20,000 you’ll receive a reduction of £6,000 against your income tax liability for the year of investment
- deferral of tax on any capital gains up to the value of an EIS investment you make in the period one year before and three years after the year in which you made the capital gain(s).
- You can elect to carry back part or all of your EIS tax credit to the year previous to that in which you made the investment. This can reduce your January self-assessment payment by up to 45p for each £1 of EIS investment.
- most EIS investments qualify for 100% inheritance tax business property relief after two years.
When cashed in:
- any increase in value of your EIS investment is exempt from capital gains tax
- if you make a loss on the investment it can be used to reduce your general tax bill.