We aim to assist small and medium sized enterprises from all sectors to access the investment that they need.
The UK government set up the Enterprise Investment Scheme in 1994. Today it offers a number of tax breaks to investors who buy shares in small, private companies:
You get income tax relief of 30%. So if you invest £10,000 in a company that is eligible for EIS, you can knock £3,000 off your income tax bill in the year that you invest.
You will pay no capital gains tax on any profits you make from an EIS investment. So if you invest £10,000 and five years later you sell your shares for £20,000, you will get the full benefit of the £10,000 profit, saving you at least £1,800.
If you make a loss on your investment, you can offset that loss against income tax. Let’s say you lose your entire £10,000 investment, because of income tax relief, your actual loss is only £7,000 (£10,000 - £3,000). You can, if you choose, to reduce your taxable income for the year in which you dispose of the shares by £7,000 resulting in a saving of £2,800 (40% of £7,000) for a higher-rate taxpayer. If you want to offset your loss against other capital gains in the normal way, you can do this instead.
There is no inheritance tax to pay on shares bought through EIS
To be eligible for these reliefs, you generally have to hold the shares for at least three years before selling them.
A few more catches:
You still have to pay tax on any dividends – but most small private companies won’t pay dividends anyway.
There are certain restrictions as to what kind of business you can invest in (it can’t be a bank, a farm or a nursing home, for example) and you can’t be connected to the company or have a stake of more than 30% of it.
You can invest a maximum of £1 million each year through EIS.
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