Enterprise Investment Scheme and Seed Enterprise Investment Scheme
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 (ie higher risk) UK companies, by offering generous tax relief to the investor.
A qualifying company can raise up to £5 million each year and a maximum of £12 million in a company’s lifetime, by issuing new shares for cash.
The company must use the funds on a qualifying business activity.
Individuals can claim EIS relief, being both an initial 30% income tax saving and an exemption from capital gains tax relief when the EIS shares are disposed of.
The annual investment limit for individuals is £1 million (or £2 million for “knowledge intensive” companies).
Qualifying investments are also exempt from Inheritance tax.
Our tax partner has years of experience and is supported where required by our network of specialists at some of the top independent firms of accountants in the UK.
What we can do?
We can advise you on the best way to qualify, whether it’s obtaining advance clearance from HMRC or guiding you as to how to make an application yourself….right through to taking care of it all for you.
And we can ensure individuals receive the reliefs they are entitles to.
How much is it?
It will depend on the complexity of the case. Once we know the full picture, we would be able to give you an estimate.
Will the company qualify for EIS status? In order to qualify, the company must have been trading for at least 4 months, but less than 7 years*; it must have less than 250 employees and its gross assets must be below £15 million. *In cases where a company is entering a new market or has a new product, the 7 year rule may be relaxed. Furthermore, there’s a lifetime limit of £12 million for each company. And companies which HMRC consider are in “difficulty” may not be eligible either.
You say the company must carry out a qualifying trade: what do you mean by this? Most trades will qualify, (including any research and development that leads to a qualifying trade, ), but businesses including things like farming, power, property development/homes/hotels, financial services may not.
What type of shares to I need to invest in? The shares must be new ordinary shares with no special rights attached to them.
I’ve heard that if I’m connected to the company, I won’t qualify, but what does “connected” mean? “Connected” means a number of things, for example: having an interest in the company that exceeds 30%; or being an employee or director of the company (or an associate of them, meaning spouse, civil partner, child, parent, grandchild or grand parent).
How do I claim the relief? You would claim the relief on your personal tax return once the company has sent you form EIS 3. But you need to hold onto the shares for a minimum of 3 years.
Your personal income tax liability for the year of the share issue would be reduced by 30% of the costs of the investment.
When can I claim the relief? You can claim the relief up to 5 years after making the investment. But be careful, you can’t carry forward any unused EIS relief to later years.
What’s the difference between EIS And SEIS? SEIS is for smaller companies, for example with assets of less than £200k, which have traded for no more than 2 years and which has no more than 25 employees. But you can only raise £150,000 under SEIS schemes.
I’ve heard there are special reliefs for “knowledge-intensive companies”; can you tell me more? Well, this for companies that carry out a significant amount of research, development or innovation and want to raise more than £12 million in the company’s lifetime and did not receive investment under a venture capital scheme within 7 years of their first commercial sale. However, the company must be carrying out work to create intellectual property and expect the majority of its business to come from it within 10 years and must have at least 20% of highly qualified employees carrying out research for at least 3 years from the date of the investment.
- Conditions for relief are complex
- Take specific tax advice
- Watch out for the anti-avoidance measures
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