For High Net Worth Individuals

EIS and SEIS

The Enterprise Investment Scheme (“EIS”) is a government scheme that allows certain tax reliefs for investors who subscribe for qualifying shares in qualifying industries.

What benefits does the EIS provide the investor?

The investor can expect:

  • Income tax relief at the rate of 30% on the amount subscribed (subject to a ceiling investment of £1 million per tax year) in shares in qualifying companies. The amount subscribed can be carried back to the previous tax year, subject to the overriding investment limit for that tax year. The EIS relief may be withdrawn if certain events occur within three years of the date the shares are subscribed for in the company, e.g. shares sold
  • Any gain arising on a disposal of the shares after three years is free from capital gains tax
  • Capital Gains Tax on gains realised on different assets can be deferred if you invest your gain into EIS qualifying shares within one year before, or three years after the gain accrued. The deferred gain becomes chargeable to capital gains tax if certain events occur later e.g. EIS shares are sold
  • Income tax relief and capital gains relief is available for any losses made on the disposal of EIS shares
  • Relief is available to directors who wish to invest in their companies provided their stake in the company is less than 30% and they receive remuneration which is commensurate to the services they provide;
  • The opportunity to participate in the running of the business and to receive reasonable remuneration for doing so

As a result of the above, an individual could have a total tax saving and deferral of up to 58% of their investment.

The Seed Enterprise Investment Scheme (SEIS) is similar to EIS but is focused on smaller, early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade. The scheme will make available tax relief to investors who subscribe for shares and have a stake of less than 30% in the company.

The relief applies to shares issued on or after 6 April 2012.

What benefits does the SEIS provide the investor?

  • Income tax relief at the rate of 50% of the amount subscribed for shares in qualifying companies (subject to a ceiling investment of £100,000 per tax year) is available to individual investors with a stake of no more than 30% in such companies. The amount subscribed for can be carried back to the previous tax year, subject to the overriding investment limit for that tax year;
  • relief is available to directors who wish to invest in their companies provided their stake in the company is less than 30% and they receive remuneration which is commensurate to the services they provide;
  • unlike EIS, an SEIS investor is able to exempt upto 50% of the capital gain they have realised on the disposal of any other asset, whilst the balance of 50% of the gain can be deferred;
  • provides for an exemption from capital gains tax (CGT) on gains on shares within the scope of the SEIS
  • Income tax relief and capital gains relief is available for any losses made on the disposal of SEIS shares

As a result of the above, an individual could have a total tax saving and deferral of up to 78% of their investment.

Charterhouse is well placed to provide tax advice to both individuals and companies wishing to look into the obvious opportunities offered with EIS or SEIS. For a confidential consultation, please call us.

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