Using the Enterprise Investment Scheme (EIS) as part of your personal tax planning.

The Enterprise Investment Scheme (EIS) is a tax incentivised investment scheme approved by HMRC that UK taxpayers can benefit from.

We’re going to take a look at what the tax advantages of EIS are…

1. Income Tax Relief

EIS offers substantial tax relief to investors, which make it an attractive option for those looking to reduce their income tax liabilities. Investors can claim income tax relief at a rate of 30% on investments up to £1 million per tax year. The overall annual tax saving therefore is up to £300,000 if you maximise the investments made in any given tax year. The 30% relief is given as a direct offset against the tax payable for the year.

2. Capital Gains Tax (CGT) Exemption

Investors in EIS-qualifying companies also can benefit from Capital Gains Tax exemption on profits realised from the disposal of EIS shares. The CGT exemption applies not only to the initial investment but also to any subsequent gains, provided the shares are held for a minimum qualifying period which is typically three years. With the rate of CGT currently at either 10% or 20% and the reductions to the tax free allowances this could prove quite valuable for investments that prove to be a success.

3. Loss Relief

The nature of companies that will qualify for registering for EIS and the ones that the government are looking to incentivize are highly innovative, small businesses, but are looking to drive the economy. It does mean that they can be perceived as risky in terms of their chances of success, with the stats being alarmingly high in terms of businesses that fail early in their journey. If an investment does turn sour the impact of the investment loss is cushioned by relief that can either be offset against capital gains or at your marginal rates of income tax, depending on what is of benefit to you at the time.

4. Inheritance Tax (IHT) Mitigation

EIS investments held for a minimum of two years also qualify for Business Property Relief (BPR), therefore potentially mitigating exposure to Inheritance Tax. This can therefore make EIS attractive to individuals who are looking to pass on their wealth to future generations whilst mitigating the impact of IHT on their estate.

EIS therefore offers some great opportunities in terms of managing immediate and future tax liabilities.

As mentioned, EIS does carry some risk so as well as reviewing the tax advantages of the investments you should consider this alongside your wider risk profile and investments, so we would always encourage you to chat with a Financial Advisor as well. You’ve hopefully already got a great contact supporting you with this but if not, we would be pleased to make an introduction.

If you want to understand if there would be tax benefit to you in utilising #EIS as part of your planning, then reach out to the team here at RiverView Portfolio.