In this article, we outline some benefits and examples of EIS tax relief, but please that Expert Apps is not authorised to give tax advice, and what applies to you will depend on your individual circumstances, so please be sure to get independent tax advice.
EIS Tax Relief is the Enterprise Investment Scheme which is an investment program in the UK to encourage investment into start-ups and early-stage, makes them more attractive and less risky to investment opportunity investors. Whereas for investors, it benefits them by offering them potentially significant income tax & capital gains relief when making an investment into an EIS eligible business.
EIS Income Tax Relief is whereby you can claim back up to 30% of your valued investment in income tax relief.
EIS Capital Gains Tax Relief:
There are two types to this type of EIS, Disposal Relief and Deferral Relief. Disposal Relief occurs when you hold your shares for at least 3 years. Whatever you gain during and after those 3 years when you sell yours shares you then will not have to pay capital gains on the tax of the gained amount. The later, Deferral Relief, refers to not having to pay Capital Gains Tax until a later date if you dispose of an asset and rather use the gain you made on the disposal to invest in shares in a company that qualifies for EIS.
EIS Loss Relief
If a business performs poorly, and your investment money is lost, you can claim Loss Relief. The claim is at the equivalent rate to the highest rate of income tax that you pay.
EIS Inheritance Tax Relief
You can generally claim this tax relief of 100% after two years of holding the shares. Any liability for inheritance tax is reduced/eliminated in respect of the shares. The shares cannot be listed on a recognised stock exchange.
Rules for investors and EIS Tax Relief:
- To qualify for these tax benefits, investors must abide by the following:
- Can only invest up to a maximum amount of £1 Million in any number of qualifying companies per year.
- Shares must be help for a minimum of 3 years.
- EIS tax relief cannot be carried forward.
- Must be a UK taxpayer
- You cannot be an employee, partner or paid director of the EIS company
- You must be buying brand new shares that are not already on the market
Seedrs prepares all of the relevant paperwork for investors, with HMRC and they will send the investor a proprietary digital tax certificate, which is needed to claim on personal tax returns. Once the tax return has been processed, investors will receive up to 30% in tax relief, and investors make anything above of their initial investment, it is then completely capital gains tax-free.