What Is The Enterprise Investment Scheme And What Are The Tax Benefits?Written on November 19, 2015 by Kirk Rice LLP
Taxing Times QuestionsThe Question:
I am considering investing in a company and I may be invited to become a director as I have a lot of experience in the company’s trade. Am I right in thinking that my investment will qualify for tax relief under the Enterprise Investment Scheme rules?
Kirk Rice LLP answers:
The enterprise investment scheme (EIS), a scheme designed to encourage new equity investment in companies, allows individuals to buy shares in certain companies and obtain income tax relief for the amount invested. There is also capital gains tax relief when the investor disposes of the shares.
Any company which carries on a qualifying activity can potentially issue shares under the EIS. An investor who becomes a paid director may qualify for relief provided, broadly, that he or she was not ‘connected with’ the company or its trade prior to his or her first acquisition of eligible shares. This is to attract investment from ‘business angels’ who provide management skills in addition to new capital. These measures should enable business angels to provide companies with capital and to take an active part in the management of the company concerned.
An investor does not usually qualify for EIS relief if he or she is connected with the issuing company at any time during the period that begins two years before the share issue and ends three years after the issue. Under the EIS scheme an individual is connected with a company if the individual, or an associate of the individual’s:
- Is an employee of, or of a partner of, the company; or
- Is a partner of the company; or
- Is a ‘paid’ director (other than the exception noted above) of, or of a company that is a partner of, the company; or
- Owns or can acquire more than 30% of the company.
Subscriptions for EIS shares of up to £1m per year may qualify for income tax relief. It is not possible to carry forward unused relief, but there is a carry-back facility. Subject to the overall annual limit of £1m, an individual may claim relief in a tax year for the whole of any amount invested in qualifying shares in the following year. The amount of the subscription carried back is treated as though it related to a share issue made in the previous tax year.
An investor obtains income tax relief for EIS investments at a rate of 30% in respect of shares issued on or after 6 April 2011. This reduction in a taxpayer’s income tax liability takes place before any other available reduction. It cannot create a repayment of tax.
The EIS rules are reasonably complex and I would recommend that you seek advice before proceeding.
If you’re in discussing this topic further, please get in touch via info@kirkrice.co.uk
Want to keep updated on tax, investments, pensions & more?
If you want to keep your finger on the pulse, sign up to our fortnightly newsletter now.
DOWNLOAD OUR FACTSHEET |
ENTERPRISE INVESTMENT SCHEME |
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
Recent Posts
-
Career Story – Rebecca EvansWritten on October 9, 2026 by Kirk Rice LLP
-
VAT Compliance: What Every SME Should KnowWritten on October 7, 2026 by Jonathan Swarbrick
-
6 Things to Know About Tax on Extra Income: Second Jobs, Freelance Work, & MoreWritten on October 5, 2026 by Jane Page
-
Business Valuation – Where Do I Start?Written on October 2, 2026 by Kirk Rice LLP
-
Payroll – Should You Outsource?Written on October 1, 2026 by Kirk Rice LLP
