Tucked away in the now infamous “mini-budget” of 23 September 2023, the government outlined their intention to extend the 2025 sunset clause for the Enterprise Investment Scheme (EIS). With Conservative Party infighting and potentially a change of government before the extension can make its way through Parliament, now may be the time to focus your plans to use this generous tax relief.
EIS is used by private companies to attract external investment, recommended by IFAs as part of a wealth management strategy, or through investor platforms such as crowdcube. One of the key EIS rules is that the risk-to-capital condition must be met at the time of the share issue. This means that the company has objectives to grow and develop its trade in the long-term, but that there is a significant risk that the investor will lose some or all of their investment. This is therefore not for the risk averse and is not an investment that should dominate a portfolio.
From a commercial perspective this relief will make an investment more attractive to an investor, potentially providing:
- 30% Income Tax relief
- A Capital Gains Tax exemption following a sale of the EIS qualifying shares
- A Capital Gains Tax deferral mechanism on a pound for pound basis
- Inheritance Tax protection
As this is an incredibly generous tax regime, unsurprisingly there are numerous rules for the company, investor, and the shares to satisfy.
Please do get in touch if we can help you with your EIS queries.