EIS funds, including approved knowledge-intensive funds

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

  • EIS funds, including approved knowledge-intensive funds
  • EIS rules in relation to nominees
  • Nominee EIS fund structure
  • Alternative EIS fund structure—no nominee, no HMRC approval
  • HMRC approval
  • EIS funds that close on or after 6 April 2020
  • EIS funds that closed before 6 April 2020
  • Claiming EIS relief
  • Tax treatment of fund management fees

EIS funds, including approved knowledge-intensive funds

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 (see Practice Note: EIS—conditions for relief: individual investor conditions)

  2. the issued shares (see Practice Note: EIS—conditions for relief: issued shares, the funds raised and the arrangements in general), and

  3. the issuing company (see Practice Notes: EIS—conditions for relief: issuing company and EIS—conditions for relief: qualifying trades)

While the rest of the Practice Notes in this subtopic assume that the individual investor subscribes for shares directly in an EIS-qualifying company, it is also possible for investors to qualify for EIS relief by subscribing via an EIS fund (provided all the conditions for EIS relief are otherwise met).

Many EIS fund structures rely on the specific rule explained below permitting EIS shares to be held by a nominee or bare trustee on behalf of the individual investors. Funds invested by several investors are pooled and a nominee subscribes for shares in a range of EIS-qualifying companies selected by the fund manager. The fund manager effectively retains control over the investment portfolio for the period of the fund's life and

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