Income Tax Relief
Subject to various conditions, investors may obtain income tax relief at 30% on qualifying investments of up to £1 million per annum (a reduction of up to £300,000 of your income tax liability), although please note that the income tax relief is withdrawn if these shares are disposed of within three years. Income tax relief can only be claimed if you have a sufficient income tax liability.
Eligibility for income tax relief is restricted to companies with which you are not connected at any time during a period beginning two years before the issue of shares and ending three years after that date, or three years from the commencement of the trade if later.
Carry Back Relief
There is a “carry back” facility where part or all of the EIS investment can be treated as being purchased in the preceding year.
Should the value of your EIS investment make a loss, it may be possible to apply for Loss Relief. The amount of the loss is restricted by the amount of the EIS income tax relief still attributable to the shares disposed of. A capital loss arising on the disposal of EIS shares can also be set against income in the year, or previous year, in which the EIS investment is disposed of, instead of being set off against any capital gains. By helping to minimise the impact of the loss, this relief may ultimately improve the risk/return profile of your investment.
Capital Gains Tax (CGT) Relief
CGT is normally charged when certain capital (or ‘chargeable’) assets are sold at a profit. However, deferral relief means it is possible to defer a CGT payment on gains arising on disposals of any assets where these gains are reinvested in new shares in an EIS company. The chargeable CGT is deferred for the life of the investment. You can defer gains made in the 36 months prior to your investment or 12 months after.
Inheritance Tax (IHT) Exemption
After two years an EIS investment qualifies for Business Property Relief (BPR) and therefore can be free from Inheritance Tax (IHT).
To qualify for the EIS, the gross value of the company must not exceed £16 million after the investment, and there are restrictions to ensure that investment is targeted at new risk capital. The company must also be unquoted when the shares are issued, have fewer than 250 full-time employees (or the equivalent) and have raised less than £5 million under any of the venture capital schemes in the 12 months ending with the date of the relevant investment.
For more information please download our Tax Efficient Investing guide, or give us a call on: 020 7843 0470.
After filling out a quick form, you shall be able to click on any of the link to download the file.