Enterprise Investment Schemes EIS
Enterprise Investment Schemes (EIS) were brought out in 1994 and replaced the governments previous Business Expansion Scheme. The goal of which is to encourage investors to invest in small and unquoted companies.
These are high risk as the investment is going to smaller, newer companies with little or no track record. Normally the investor is buying direct rather than a pooled investment. Although as an alternative it is possible to invest through a EIF Fund or Enterprise Investment Scheme fund. These funds raise money from investors and then on a defined date close and buy stock in a pool of qualifying companies.
Companies requiring funding only qualify if they meet the rules. There assets need to be less than 7 million before investment and less than 8 million after.
Encouragement for investment is given through tax relief. These terms are complex but in brief are outlined below:
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The investor must be qualifying i.e. They cannot be connected to or previously connected to the company.
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The shares must be new ordinary shares and cannot be redeemed in the 1st 3 years.
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The company must be qualifying i.e. it must be an unquoted company with business wholly or mainly in the UK. This can include companies listed on the AIM.
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The minimum investment is £500 unless it is made through a investment fund.
Enterprise Investment Schemes EIS and Income Tax
Income tax relief of up to £400000 for investment made on or after 6th April 2006. Before that date the limit was £200000. The tax receive is given at the lower of the amount of tax payable by the investor or 20% of the amount invested.
Enterprise Investment Schemes EIS and Capital Gains Tax CGT
If the shares are held for 3 years then no CGT tax is payable. Any capital loss can be offset against other capital gains.
