EIS—circumstances in which relief is withdrawn or reduced
EIS—circumstances in which relief is withdrawn or reduced

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • EIS—circumstances in which relief is withdrawn or reduced
  • Withdrawal or reduction of EIS income tax relief
  • Receipt of value
  • Relief withdrawn because investor ceases to be eligible for EIS relief
  • Relief withdrawn because shares or company cease to be eligible for EIS relief
  • Notification requirements
  • Calculating the clawback—disposal of EIS shares
  • Calculating the clawback—receipt of value
  • Calculating the clawback—repayment or repurchase of share capital
  • Interaction between clawback of income tax relief and CGT exemption
  • more

The Enterprise Investment Scheme (EIS) is designed to encourage investment in smaller, higher-risk trading companies by offering a range of tax reliefs to individual investors purchasing newly issued shares in those companies.

For full details of these tax reliefs, see Practice Note: EIS—introduction to regime and description of tax reliefs. In summary, these reliefs include:

  1. income tax relief at 30% of the amount invested up to £1m (or up to £2m if there are shares in a knowledge-intensive company (KIC)) (subject to clawback if the shares are disposed of within three years)

  2. CGT exemption on any capital gain realised on a disposal of shares that qualified for EIS relief and were held for three years, and

  3. CGT deferral relief allowing an investor to defer capital gains realised on disposal of assets to the extent that gains are reinvested in shares qualifying for EIS relief

When advising upon the availability of EIS tax relief it is essential to note the potential for such relief to be subsequently withdrawn or restricted as a result of the actions of the individual investor or of the issuing company (or its group). This may happen regardless of the fact that all conditions were met at the time of investment. To avoid clawback of EIS relief, very broadly:

  1. the individual investor must meet the investor conditions for three