EIS
The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.
Tax Relief:
- 30% Income Tax Relief (up to £300,000 due to maximum £1,000,000 invested).
- Relief can be claimed up to a maximum of £2 million invested in EIS shares provided any amount in excess of £1 million is invested in knowledge-intensive companies
- Relief can be carried back to the previous tax year.
- CGT is deferred when investing the gain into EIS qualifying shares when the gain is re-invested in the period beginning one year before and ending 3 years after the disposal.
- Relief is lost if the shares are disposed within 3 years (except on death or to a spouse).
- IHT relief after 2 years through BPR (business property relief).
Conditions:
- Eligible shares are new ordinary shares that are not redeemable for at least three years;
- A qualifying company must be unlisted when the shares are issued, and there must be no arrangements at that time for it to become listed;
- Fewer than 250 full-time employees at the date on which the shares are issued;
- The gross assets of the company must not exceed £15m before the issue of shares, nor £16m afterwards;
- The company must carry on a qualifying trade and have a permanent establishment in the UK.
Questions - Use Your Note Taker To Jot Down Ideas / Calculations
1. Emily, a basic rate taxpayer, is selling a buy-to- let property for a substantial profit. What is the
situation with regard to her reinvesting the gain immediately into an Enterprise Investment Scheme?
a) She can reinvest any amount and receive capital gains tax deferral relief and her income
tax relief is also unlimited.
b) She can reinvest up to £1,000,000 and receive capital gains tax deferral relief, but her
income tax relief may be restricted by her personal tax liability.
c) She can reinvest any amount and receive capital gains tax deferral relief, but her income
tax relief will be restricted by her personal tax liability.
d) She can reinvest any amount and receive capital gains tax deferral relief, but the
investment will not impact her income tax liability at all.
C)
CGT deferral relief on EIS investments is not capped. Income tax relief is capped at the higher of the
investor’s income tax liability or 30% of £1 million.
2. NSP Limited has gross assets of £14.8 million. The maximum the company can raise from
subscriptions to an Enterprise Investment Scheme (EIS) is:
a) £200,000.
b) £0.
c) £1,200,000.
d) £1,000,000.
C)
The maximum gross assets immediately before raising money with an EIS scheme is £15mm.
Immediately after the raising of EIS capital the maximum gross assets can be no more than £16mm.
So in the above example £1.2mm can be raised as that will take SPS limited to the maximum gross
assets of £16mm after EIS capital.
3. Bob, an additional-rate taxpayer, plans to invest £200,000 in an Enterprise Investment Scheme (EIS),
his first investment of this type. It is TRUE to say that:
You must select ALL the correct options to gain the mark:
a) Capital Gains Tax in respect of another gain can be deferred by reinvesting the gain
into an EIS company.
b) he will be able to carry back the full relief to the previous tax year provided he had a
tax liability of at least £60,000 in the previous tax year.
c) if he receives a dividend of £900 from the EIS, he will have no further liability to
income tax.
d) the EIS shares will qualify for 100% business property relief if they are held for at
least two years.
e) a non-UK resident is eligible to invest in an EIS, but can only claim relief against any
liability to UK Income Tax.
A, B, D & E)
- Further study text reading: Pages 289 - 291