Enterprise Investment Schemes (EIS) are UK tax incentive schemes designed to encourage investors to invest in unquoted companies.
The benefits of an EIS are:
- Income tax relief at 20%: so if you invest £10,000, the taxman gives you £2,000 back.
- CGT relief: provided you hold your investment for five years, any gains subsequently made are free of capital gains tax.
- Tax relief on losses: if your EIS investment is a disaster, you can set the losses off against gains made in the tax year in which you incur losses.
- Rollover relief: if you use the proceeds from selling shares in Company A to invest in Company B, and Company B is an EIS-qualifying company, you won't have to pay tax on the gains made from Company A until you subsequently dispose of Company B's shares. i.e. your gain is rolled over.
The maximum amount that can be invested in to an EIS is £400,000 annually (2006-2007).
The risks associated with EIS companies are high and such an investment may not be suitable for all investors. Professional advice should be taken before committing funds to them.
The rules concerning what companies qualify and what prevents an individual from obtaining EIS relief are complicated. You can obtain HM Revenue and Custom's booklet IR137 on the subject or you can refer to HM Revenue and Custom's website: www.inlandrevenue.gov.uk/pdfs/ir137.htm