Enterprise Investment Scheme

In the current difficult climate tax planning is more important than ever to ensure that you are able to reduce or mitigate your overall tax liability.

In this regard we would like to take this opportunity to remind you of the tax benefits of the ‘Enterprise Investment Scheme’ (EIS). The EIS can be a simple way of reducing your tax burden.

The EIS provides tax incentives to encourage investment in the ordinary shares of unquoted trading companies by offering income tax and capital gains tax reliefs and exemptions so long as certain criteria are satisfied.

We are currently working with a Media House who offer investment opportunities using the EIS and they can provide further detail on the investment aspects. Should you be interested in considering investing in this type of product then you will need to take independent financial advice. We can introduce you to an appropriate financial adviser for this purpose.

Income Tax Advantages

Income tax relief of 20% is available on the amount invested into an EIS. The maximum relief available is £100,000 i.e. 20% of £500,000.

The income tax relief is the lower of: 20% of the amount subscribed for a qualifying investment and your tax liability for the year.

So that if, for example, you are expecting an income tax liability in the current tax year (2008/09) of £50,000 and you invest, say, £200,000 into an EIS then your income tax relief will be 20% of the investment i.e. £40,000, leaving you with a tax liability of only £10,000.

The investment needs to be made by 5 April 2009 to attract relief for the current tax year’s income tax liabilities.

(Although for investments made between 6 April and 5 October in the following tax year you can treat up to half of the EIS investment as having been made in the previous tax year subject to a maximum carry back of £50,000 (of the investment).

So long as the EIS shares are held for 3 years the relief is permanent. So you are able to liquidate your investment after the 3 year period and retain the full relief. (You are also able to sell your shares before then if the need arises but the relief is withdrawn proportionately).

Capital Gains Tax Advantages

When the shares are sold, so long as it’s after 3 years, gains on the disposal will be exempt from Capital Gains Tax.

Further, if you sell the shares at a loss this capital loss is allowable against general income (although this loss will be reduced by the EIS income tax relief attributable to the shares).

Conditions for the Relief

There are a number of conditions which you, as the investor, must satisfy for the relief to be available to you and the key ones are as follows:

You must not be connected to the EIS company – in that you must not be an employee or non qualifying director of the company ( a qualifying director is one who receives reasonable remuneration.)
You (along with your associates) must not hold more than 30% of the ordinary shares of the EIS company. Associates are your spouse, civil partner, parent, grandparent, child and grandchild.

There are various conditions which the company you are investing in must satisfy to be an EIS company but the Media House will ensure compliance with all such conditions.

Inheritance Tax

100% relief against inheritance tax is available after 2 years if the investment is held at the date of death.

Summary

Enterprise Investment Schemes have a number of valuable tax benefits and could reduce or even eliminate your income tax liability for the current tax year.

If you are interested in investing in the EIS in the current tax year to take advantage of the available income tax relief then you will need to make the investment by 5 April 2009. So please contact us as soon as possible.