The Enterprise Investment Scheme (EIS) is a series of tax reliefs designed to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom.
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 £400,000 per annum.
Deferral of gains realised on a different asset, where disposal of that asset was less than 36 months before the EIS investment or less than 12 months after it. (Deferral relief). This relief is not limited to investments of £400,000 per annum and can be claimed by investors whose interest in the company exceeds 30%. It is available to individuals and trustees. Where gains arise on the EIS investment, taper relief is available. Note that deferral of gains is no longer available by investing in VCTs.
No Capital Gains Tax payable on disposal of shares after three years (after five years for investments made before 6th April 2000) provided the EIS initial income tax relief was given and not withdrawn on those shares.
If EIS shares are disposed of at any time at a loss, such loss can be set against the investor's capital gains or his income in the year of disposal.
EIS Investments are exempt from Inheritance Tax after two years of holding such investment. (Source: Enterprise Investment Scheme Association)
Purpose
Investment in companies that are not listed on a stock exchange often carries a high risk. The tax relief 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.
The scheme is named after a man who became notorious for using the technique, Charles Ponzi, an Italian immigrant in 1903 to the United States.
The manner of Ponzi's initial scheme was actually fairly crude, one of the apparent reasons being that he himself believed that he had found a way to legally generate large profits.
In 2000, a Ponzi scheme perpetrated by Scientology minister Reed Slatkin came unravelled when SEC regulators became aware that Slatkin was not a licensed investment advisor.
The EnterpriseInvestmentScheme is a UK tax incentive scheme designed to encourage investors to invest in unquoted companies.
CGT relief: provided you hold your investment for five years, any gains subsequently made are free of capital gains tax.Tax relief on losses: if your EIS investment is a disaster, you can set the losses off against gains made in the tax year in which you incur losses.
As with EIS investments, there are lots of rules which, if broken, will invalidate the tax advantages.The risks associated with EIS companies are high and you should take professional advice before committing funds to them.
Feeds |
Contact