Enterprise Investment Scheme (EIS)

“Enterprising investors save tax on gains made three years ago. New rules allow 40 per cent [Capital Gains] tax to be reclaimed, and paid at 18%…. Simon Rogerson, chief executive at Octopus Investment, describes the opportunity as a “massive deal”.     Financial Times, June 2008 

The Enterprise Investment Scheme (EIS) offers a different and complementary set of tax breaks to those offered by VCTs particulary. The EIS scheme is now the only UK tax efficient scheme to offer Capital Gains Tax (”CGT”) Deferral. The scheme also offers income tax relief at 20%, capital gains free growth and, through Business Property Relief, relief from Inheritance Tax (”IHT”) if the shares are held for more than two years. Source: Enterprise Investment Scheme Association 2009.

        Potential EIS and other tax benefits for individuals include

Below are detailed the key EIS and other tax benefits that are available for potential film investors:

Income Tax Relief of 20% of the amount invested under EIS

An individual can reduce their income tax liability by 20% of the amount invested in the EIS shares. The EIS qualifying investment must be held for no less than three years from the date of issue, or three years from commencement of trade, if later. An individual can have no more than a 30% interest in the company. The minimum subscription is £500 per company and the maximum per investor is £500,000 per annum. Where an individual subscribes for qualifying shares before 6 October in a tax year, a claim may be made to carry back one half of the amount subscribed to the previous tax year, subject to a maximum of £50,000.

For more information click on the link above.

Capital Gains Tax Deferral Relief of up to 40% of the amount invested under EIS

Tax on gains realised on a different asset can be deferred indefinitely, where disposal of that asset was less than 36 months before the EIS investment or less than 12 months after it. Deferral relief is unlimited, in other words, this relief is not limited to investments of £500,000 per annum and can also be claimed by investors (individuals or trustees) whose interest in the company exceeds 30%. This can be done on a sequential or serial basis.

For more information click on the link above.

Capital Gains Tax Relief of 100% on EIS shares sold

There is no capital gains tax charged on the gain in any sale of shares so long as the investor has held their shares for at least three years.

Inheritance Tax Relief of 100%

Shares in the Company should qualify for 100% exemption from Inheritance Tax in the event of the death of the shareholder so long as the shares have been held for two years.

For more information click on the link above.

Loss Relief of potentially 52% of Investment

If the investment does not succeed or the EIS shares are disposed of at a loss (after taking into account income tax relief), such loss can be set against the investor’s capital gains or taxable income in the year of disposal or the previous year. It the loss is set against taxable income and Capital Gains Tax Deferral Relief has not been claimed then the net effect is to limit the investment exposure to 48p in each £1 for a 40% tax payer if the shares have become totally valueless. If Capital Gains Tax Deferral Relief has been claimed then the net effect is to limit the investment exposure to 65.6p in each £1 for a 40% tax payer if the shares have become totally valueless.

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Before investing, investors should seek advice, from their own professional advisers or indepedent advisers, in regards to the suitability of the investment and their entitlement to tax relief.

HMRC relevant information, can be found if you > Click here

HMRC’s guidance -  An Introduction to the Enterprise Investment Scheme (EIS) - downloadable PDF file if you > Click here

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