What is EIS & SEIS?
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The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are UK government schemes designed to help smaller higher-risk trading companies raise finance, by offering a range of tax relief to investors who purchase new shares in those companies. Where a business is listed as 'EIS' or 'SEIS' this tax relief will be available to qualifying investors.
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The benefits of EIS tax relief
You can claim up to 30% income tax relief on investments up to £1 million per tax year. Any gain is Capital Gains Tax (CGT) free if the shares are held for at least three years.
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Payment of CGT can be deferred when the gain is invested in shares of an EIS qualifying company. If the shares are disposed of at a loss you can elect that the amount of loss be set against any income tax of that year or of the previous year.
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Here’s a few examples of how EIS tax relief works. To make the maths easy, let’s assume you invest £10,000 in each case and you’re in the 45% tax bracket.
COMPANY 1
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The company does well and doubles its value and you hold the shares for three years
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Investment = £10,000
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Income Tax relief = £3,000 (as a reduction in your income tax bill)
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Share sales = £20,000
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Your gain = £13,000 (£10,000 profit from the sale plus £3,000 income tax relief)
COMPANY 2
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The company value stays the same
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Investment = £10,000
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Income Tax relief = £3,000 (as a reduction in your income tax bill)
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Capital Gains Tax = £Zero
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Your gain = £3,000 (from the income tax relief)
COMPANY 3
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The company closes and your shares are worth nothing
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Investment = £10,000
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Income Tax relief = £3,000 (as a reduction in your income tax bill)
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At risk capital = £7,000
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Loss relief on at risk capital @ 45% = £3,150
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Your actual loss = £3,850 (£10,000 – [£3,000 + £3,150])
Please note:
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The availability of any tax relief, including EIS and SEIS, depends on the individual circumstances of each investor and of the company concerned, and may be subject to change in the future. If you are in any doubt about the availability of any tax reliefs, or the tax treatment of your investment, you should obtain independent tax advice before proceeding with your investment.
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Please visit the HMRC website for further information on EIS tax relief.