There are two main restrictions to EIS eligibility, both relating to whether you are “connected to the company or become connected during the period of your investment. This applies for up to 2 years before and 3 years after the investment. This “connection” can take two forms:
1) Connection by financial interest
You are not eligible if you control the company or hold more than 30% of the share capital or voting rights. All relatives except siblings are included within these restrictions.
2) Connection by employment
Partners, directors and employees of the company are all connected with it and therefore not eligible, as are associates. Associates are business partners, trustees and all relatives.
Tax relief will also be withdrawn if the company loses its qualifying status. The relief will be either reduced or withdrawn if the shares are disposed of or if the investor receives “value” from the company such as a loan or an asset below market value. The only exceptions are Business Angels, where the connection is as a director who receives no remuneration from the company.