EIS—conditions for relief: individual investor conditions
EIS—conditions for relief: individual investor conditions

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

  • EIS—conditions for relief: individual investor conditions
  • Conditions relating to individual investor
  • Subscribe for shares on own behalf—nominees
  • Connection test
  • No existing shareholding
  • No pre-arranged exit
  • Linked loans test
  • Tax avoidance test
  • Meaning of 'associate'

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.

The EIS regime is prescriptive and sets out numerous requirements that must be met, including in relation to:

  1. the individual investors

  2. the issued shares, and

  3. the issuing company

This Practice Note focuses on the conditions applicable to the individual investor. These conditions are described in the context of the income tax relief provided for in Part 5 of the Income Tax Act 2007 (ITA 2007). References to the corresponding capital gains tax (CGT) rules are also provided where relevant.

For details of the other conditions see Practice Notes:

  1. EIS—conditions for relief: issued shares, the funds raised and the arrangements in general

  2. EIS—conditions for relief: issuing company

  3. EIS—conditions for relief: qualifying trades

For an explanation of the various tax reliefs available to qualifying EIS investors see Practice Notes: EIS—introduction to regime and description of tax reliefs and EIS—circumstances in which relief is withdrawn or reduced.

Conditions relating to individual investor

To qualify for EIS relief, the individual investor must meet the following requirements:

  1. subscribe for shares on own behalf (although nominees are permitted—see below)

  2. subscribe for (EIS-qualifying) shares wholly in cash that are fully paid up at the time of issue

  3. no connection