The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are UK government schemes designed to help smaller higher-risk trading companies raise finance, by offering a range of tax relief to investors who purchase new shares in those companies. Where a business is listed as 'EIS' or 'SEIS' on Crowdcube, this tax relief will be available to qualifying investors.
What are the benefits of these schemes?
- You can claim up to 30% income tax relief on investments up to £1 million per tax year;
- Any gain is Capital Gains Tax (CGT) free if the shares are held for at least three years;
- If the shares are disposed of at a loss (for example, if the company enters insolvent liquidation) you can elect that the amount of loss, less income tax relief, be set against any income tax of the year in which they were disposed of, or, on income of the previous year;
- Payment of CGT can be deferred when the gain is invested in shares of an EIS qualifying company
- You can claim income tax relief of 50% on investments up to £100,000 per tax year;
- Certain CGT benefits depending on the which tax year the investment was made.
Are there any restrictions with claiming SEIS/EIS relief?
Most importantly, you need to be a UK taxpayer in order to claim SEIS or EIS relief. Moreover, you will not be eligible for SEIS or EIS tax relief if you are connected with the company. You can find a detailed list of ineligibility factors in section 1.3 of the HMRC guide here.
Please note that the availability of any tax relief, including EIS and SEIS, depends on the individual circumstances of each investor and the company concerned, and may be subject to change in the future. If you have any questions regarding the availability of tax relief or the tax treatment of your investment, you should obtain independent tax advice before proceeding with your investment.
Income Tax Relief
There is no minimum investment through EIS in any one company in any one tax year. Tax relief of 30% can be claimed on investments (up to £1,000,000 in one tax year) giving a maximum tax reduction in any one year of £300,000, provided you have sufficient Income Tax liability to cover it.
EIS allowances are allocated individually; therefore a married couple could invest up to £2 million each tax year and be eligible for Income tax relief. The shares must be held for at least three years from the date of issue or the tax relief will be withdrawn.
People connected with the company are not eligible for Income Tax Relief on their shares.
Capital Gains Tax exemption (CGT)
Any gain is CGT free if the shares are held for at least three years and the income tax relief was claimed on them. Shares can be held for much longer and therefore potentially enable the investor to accrue their CGT exemption over a long period of time which can be a great attraction. Capital Gains Tax (CGT) relief may also be available if you sell, give away, exchange or otherwise dispose of your shares.
Payment of CGT can be deferred when the gain is invested in shares of an EIS qualifying company. The gain can be made from the disposal of any kind of asset but the Investment must be made one year before or three years after the gain arose - connection to the company does not matter. Unconnected investors are eligible for relief from both Income tax and CGT deferral relief.