Full details of EIS schemes can be found in the Inland Revenue IR137 pamphlet on EIS, which is an 82-page document and is readable and downloadable in Adobe pdf format read more...

EIS Tax Advantages

There are significant tax advantages to be obtained for individuals or trusts making EIS investments through a Fund. For individuals, these include the following:

EIS Relief on Subscriptions

Individuals may make subscriptions to a Fund and obtain EIS Relief at up to 20% on the amounts of up to £400,000 in any tax year subscribed for Investments in EIS Qualifying Companies though the Fund (with husbands and wives qualifying separately).

The certificate stating and confirming the EIS Relief obtainable by an Investor is on Form EIS 5 issued by the Fund Manager rather than on a Form EIS 3 issued by the EIS Qualifying Company. An Investor cannot obtain EIS Relief without the Form EIS 5. The latest date on which an Investor can claim EIS Relief is five years after 31 January following the tax year to which the claim relates.

If an Investment attributable to an Investor’s Portfolio is held for three years from the date of subscription (or from the date of commencement of the EIS Qualifying Company’s trade if later), that individual reduces his/her income tax by an amount of up to 20% of the amounts of up to £400,000 subscribed for any Investments, provided he or she is not connected with any EIS Qualifying Company in which an Investment is made either within two years before or three years after the Fund invests in the EIS Qualifying Company.

A husband and wife can each make investments up to £400,000 in any tax year. The EIS Relief is given at the lower rate of tax (currently 20%) and is given against (but cannot exceed) the individual’s income tax liability for the tax year of the Closing Date of the Fund:

Example                   

Initial Net Investment          £50,000

Less EIS Relief at 20%        £(10,000)

Net cost of Investment         40,000

Exemption from CGT

Any capital gains realised on the disposal of the Investments, where EIS Relief has been given and not withdrawn, are tax-free.

No CGT is payable on capital gains made on Investments through a Fund provided that the shares are held for at least three years from the date of subscription (or from the date of commencement of the EIS Qualifying Company’s trade if later) and are Investments in respect of which EIS Relief has been obtained and not withdrawn.

Example:

Realised value of Investment after 3 years          £50,000

Less initial Net Investment                                 £(10,000)

Tax free gain                                                   £40,000

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