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High risk investments with generous tax reliefs - EIS and SEIS schemes

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are government incentives designed to encourage investment in high risk, small and medium-sized unquoted trading companies.
Income tax relief

Last updated: 1 September 2020

Income tax relief

Relief can be claimed in the tax year prior to the year of investment, so long as the limit for that earlier year hasn’t already been reached.

Investments of up to £1 million in EIS qualifying companies (up to £2 million in knowledge intensive companies) attract income tax relief at 30%. Investments of up to £100,000 in SEIS qualifying companies attract income tax relief at 50% in any one tax year. 

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Paul Hogarth

+44 (0)20 7556 1480
hogarthp@buzzacott.co.uk

Last updated: 1 September 2020

Income tax relief

Relief can be claimed in the tax year prior to the year of investment, so long as the limit for that earlier year hasn’t already been reached.

Investments of up to £1 million in EIS qualifying companies (up to £2 million in knowledge intensive companies) attract income tax relief at 30%. Investments of up to £100,000 in SEIS qualifying companies attract income tax relief at 50% in any one tax year. 

Capital gains tax

Capital gains tax reliefs

For EIS investments: these can be used to defer capital gains tax (CGT) on other assets. The EIS investment must be made between 12 months before and 36 months after the date of disposal of the asset on which the gain arises. The deferred gain will come back into charge when either: 

  • the EIS investment is disposed of
  • the company breaches any of the conditions for EIS, or
  • if you become a non-UK resident. 

A gain which comes back into charge (other than on you becoming non-UK resident) can be re-deferred by making another EIS investment.

For SEIS investments: deferral relief does not apply, but instead reinvestment relief is available. You can obtain CGT relief on 50% of the SEIS investment which qualifies for income tax relief. This is a relief rather than a deferral, and the gain will not come back into charge unless the income tax relief on the SEIS investment is withdrawn. 

The capital gain you want to be relieved must be made in the same year as your income tax relief is claimed, but the gain does not have to be realised before the SEIS investment is made.

Capital gains tax exemption on disposal

If income tax relief was received on the original investment, it wasn’t withdrawn and the shares have been held for a minimum of three years, an EIS or SEIS investment will be exempt from CGT on disposal.

Tax relief for losses

Tax relief for losses

If a loss arises on the disposal of EIS or SEIS shares (including the shares becoming of negligible value if the company fails) you can set the loss against income of either the year in which the loss arises, or the previous year. When calculating the loss relief available, the loss is then restricted by the income tax relief received on the original investment.

If you're connected with the company

Points to note if you’re connected with the company

  • If you’re connected to the company: Income tax relief can’t be claimed if you or a person who is your ‘associate’ is connected with the company. For these purposes, a connection with the company means that you or your associate is either employed by the company (except as a director in certain cases) or holds more than 30% of the company’s shares, rights to assets on winding up or voting rights.
  • ‘Associates’ for these purposes are: parents, grandparents and great-grandparents, children, grandchildren and great-grandchildren, spouses and civil partners, business partners or trustees of settlements where you are the settlor or beneficiary.
  • If you have shares in the company: The shares purchased must be newly issued and fully paid for in cash. There must be no arrangements to protect the value of the investment, sell the shares at any time up to the end of the three year holding period, or for reciprocal investment by the owner of the EIS or SEIS company in your own company.
  • EIS income tax relief will not be available if, at the time you make the EIS investment, you already held shares in the company which weren’t issued to you when the company was formed, or which are not already EIS qualifying shares.
Speak to an expert
Speak to an expert 

We can advise on the interaction and availability of these reliefs, as well as verify that the qualifying conditions have been met. We can also assist with making correct claims via your self-assessment tax return or using the forms EIS3 or SEIS3.

If you would like more information or if you have a query about any of the topics mentioned in this article, please fill in the form below and one of our experts will be in touch.

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