The Enterprise Investment Scheme (EIS) was launched in 1994 to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom. By their nature, unlisted companies are high risk and have low liquidity, so consequently have difficulty raising capital. The EIS was designed to offer investors tax relief to counterweight those risks. To date, over £15 billion has been invested under the scheme into approximately 25,000 companies.
The tax benefits under EIS are:
- 30% upfront tax offset (with a maximum subscription of £1,000,000 per investor per year).
- No CGT on any gains (if the investment is held for at least three years).
- Capital losses can be offset against other income. (This reduces the investments potential loss to only 38.5% of an investor's capital).
- Shares do not form part of the estate for Inheritance Tax purposes.
Qualifying companies must meet the following conditions:
- Less than £15 million of assets.
- Less than 250 full-time equivalent employees.
- All capital employed must be actively engaged in the company within 24 months.
- Must not be involved in coal and steel production, farming, leasing, financial services or property development.
- Entry into the scheme is subject to a decision and audit made by an appointed tax officer.
- Must not be listed or have any intention of becoming listed at the time of the investment.
- No investor can own more than 30% of the company.