EIS Tax Relief

The Enterprise Investment Scheme (EIS)

EIS was designed to boost economic growth in the UK by promoting new enterprise and entrepreneurship.

Now the Enterprise Investment Scheme has become one of the most revered government-backed schemes ever created.

HMRC found record levels of investment through the schemes with 4,480 companies raising a total of £2,305 million of funds under the EIS scheme. This is the highest number of companies and total amount raised since the scheme was introduced. Funding has increased by 39% from 2020 to 2021, the previous year, when 3,765 companies raised £1,662 million.

Investment in 2021 to 2022 saw a significant rebound post–pandemic to a level higher than we saw prior to the downturn during the height of the Covid–19 pandemic in 2020 to 2021. Around £584 million of investment was raised by 1,755 new EIS companies in 2021 to 2022.

Tax benefits offered to investors via the Haatch EIS

Investors can claim up to 30% income tax relief on the value of their investment.

The maximum investment that investors can claim relief on in a single tax year is £1 million, which amounts to £300,000 of income tax relief.

Investors can get relief in the tax year money is invested into a company or they can carry it back 1 tax year.

Investors in Haatch EIS funds can choose to treat some or all of the underlying company investments as if they were made in the previous tax year. This means that up to £2 million can be invested in a tax year if investors have sufficient liabilities & allowances over 2 tax years.

When investors sell EIS shares, any growth in value from an investment is 100% capital gains tax-free.

To qualify for this relief, income tax relief must have already been claimed.

Investors have to hold the shares for at least three years, and the company must remain EIS-qualifying for at least three years.

A gain made on the sale of other assets can be reinvested in EIS shares and deferred over the life of the investment. There’s no upper limit on the value of gains that can be deferred.

It’s important to note that it’s the gain, not the proceeds of the sale that should be reinvested. For example, if an asset was sold for £50,000 and cost £10,000, this would result in a gain of £40,000. This £40,000 would need to be reinvested in EIS-qualifying shares in order to defer the gain.

To qualify for deferral relief, the reinvestment into EIS-qualifying shares needs to be made no earlier than 12 months prior to, or three years after, the original gain was made.

If shares in underlying portfolio companies are disposed of at a loss, investors can elect that the loss be set against any income tax of that year or carried back to the previous tax year.

Inheritance Tax relief can be claimed against the value of shares if the investment is held for two or more years at death.