Tax reliefs have annual limits
A minority stake in your business
Early-stage businesses who meet the eligibility criteria
The Enterprise Investment Scheme (EIS) is a government tax-relief scheme that incentivises private individuals to invest in early-stage businesses. EIS allows an individual to invest up to £1m per tax year and get a 30% tax break. Any single business can raise up to £12m in EIS funding in its lifetime. The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are two government tax-relief schemes that incentivise private individuals to invest in start-ups and early-stage businesses. The schemes therefore play a very important role in encouraging the flow of equity finance (risk capital) from private investors to businesses.
If your business is eligible, EIS and SEIS benefit you by making your business a more attractive (i.e. less risky) investment opportunity for investors.
From your investors’ standpoint, EIS and SEIS offer potentially significant income tax and capital gains reliefs when UK taxpayers invest in an EIS or SEIS eligible business. Investors may already be active investors or they may simply want to support their entrepreneurial ‘friends and family’.
Her Majesty’s Revenue and Customs (HMRC) has eligibility rules for both businesses and investors. In HMRC parlance, a potential investor would need to be eligible to invest in ‘qualifying shares’ in ‘qualifying companies’.
Your business is an EIS or SEIS ‘qualifying company’ if you intend to use the investment for a ‘qualifying trade’ (which actually covers a broad range of business activities) – and there are limits on, for example, the assets and employees you can have at the time of investment.
The eligibility criteria for SEIS investment are different to those for EIS.
You can find more information on the HMRC website under EIS/SEIS Investing.
There are currently five tax reliefs available to investors. These are:
• income tax relief (30% of the value of the investment for EIS and 50% for SEIS) up to £1m total EIS investment per year
• capital gains tax (CGT) disposal relief on shares owned for a minimum of three years
• inheritance tax (IHT) relief on shares owned for a minimum of two years
• capital gains tax (CGT) deferral relief
• loss relief on shares sold at a loss (which can be offset against an investor’s capital gains tax burden)
If investors want to claim relief under either EIS or SEIS, they have to submit a self-assessment income tax return for the appropriate tax year to HMRC showing their EIS/SEIS investment. If they are claiming CGT deferral relief they will also need an EIS3 from you. The claim may give them a tax rebate.
There’s no minimum amount you can raise under these four government schemes, but there’s a maximum for the lifetime of your company, depending on the scheme:
• SEIS investments – maximum £150,000
• SITR investments – maximum £1.5m
• EIS and VCT investments – maximum £12m
You can find more information on the HMRC website under EIS.
You might want to explore two other government tax relief programmes:
Venture Capital Trusts (VCT) – A venture capital trust (VCT) is a listed company that has been approved by HMRC to invest in – or lend money to – unlisted companies. It’s one of four government schemes designed to encourage individual investors to put money into high-growth businesses. See also Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Social Investment Tax Relief (SITR). A Venture Capital Trust (VCT) is a listed company (i.e. a company whose shares are traded on the London stock market), which aims to make money by investing in smaller unlisted businesses.
Social Investment Tax Relief (SITR) – Social investment tax relief (SITR) is a government scheme that incentivises private investment in social enterprises (i.e. businesses that generate a positive social impact). The rules for both investor and social enterprise are similar to those for Enterprise Investment Scheme (EIS).
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