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[28.10.2014]

If you’re looking for investment in your future MegaCorp, the Enterprise Investment Scheme (EIS) will certainly help make you more attractive.

The EIS (and its younger cousin, the Seed Enterprise Investment Scheme or SEIS) were devised to encourage investment in small businesses.

These schemes offer very generous tax breaks on the investment and further benefits later on.

For example, if you buy shares using an EIS, you get a tax rebate of 30% of your investment. That’s 30% cash back, if you’ve got the tax bill to match. And SEIS is even more generous – you get a 50% tax rebate.

You have to hang onto the shares for 3 years but after that, any profit on selling your shares is tax-free!

If you’ve got capital gains tax to pay, you can defer some or all of it by investing the proceeds in an EIS. While SEIS gets you a 50% exemption from Capital Gains Tax.

 

SEIS EIS
Income tax rebate 50% 30%
Capital Gains Tax 50% exemption deferral
Max investment by individual £100,000 £1 million
Max that can be raised by the company £150,000 £5 million
Max assets of the company £200,000 £15 million
Company set up for less than 2 years
Maximum shareholding of investor 30% 30%

 

Of course there are restrictions.

The tax relief is only available to individuals and mostly not to ‘connected’ persons.

 

Time limits

– final approval (acceptance of form EIS1) cannot be given unless the company has been trading for at least four months.

– the application must be submitted no later than two years after the end of the year of assessment in which the shares were issued.

 

The company must fulfil the conditions for at least 3 years (from date of investment or from date of starting to trade, if later)

– it must continue trading

– investors  must not receive any other benefit from the company or be involved in running it

– excluded activities (there’s a list) may account for no more than 20% of the business of the company

 

Correct procedures must be followed

– shares must be issued when payment is received (and not before)

– allotment of shares must be registered with Companies House

– company share register should be updated correctly

 

But that’s not a lot of conditions for a very generous outcome.

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