Enterprise Investment Schemes (EIS)

Investment in companies that are not listed on a stock exchange often carries a high risk. The tax relief provided under an EIS is intended to offer some compensation for that risk. The EIS offers both income tax and capital gains tax reliefs to investors who subscribe for shares in qualifying companies.

An individual with no more than a 30% interest in the company can reduce his income tax liability by an amount equal to 20% of his share subscription. The minimum subscription is £500 per company and the maximum per investor is £500,000 per annum. This gives a maximum tax reduction of £100,000 each tax year.

Deferral of gains realised on a different asset can be made where disposal of that asset was less than 36 months before the EIS investment or less than 12 months after it. This relief is not limited and can be claimed by investors whose interest in the company exceeds 30%.

There is no Capital Gains Tax payable on disposal of shares after three years (after five years for investments made before 6 April 2000) provided the EIS initial income tax relief was given and not withdrawn on those shares.

EIS Investments are also exempt from Inheritance tax after being held for two years or more which can make them a very useful tool in estate planning.