Use of enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS)

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Use of enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS)
  • Using EIS and SEIS to attract investors
  • Advance clearance
  • Information and documentation required for EIS and SEIS clearance applications
  • Prospectus

The EIS offers substantial tax incentives to investors in companies which qualify. The tax incentives for EIS investments are intended to encourage investment in high-risk companies. Therefore, there are stringent conditions associated with EIS reliefs and tax advice on EIS should be undertaken and supervised by a suitably experienced practitioner. Terms of engagement for EIS work should be carefully drafted, in particular because conditions are tested on an ongoing basis and tax advisers should ensure that they are not liable for the results of any future action, which will be out of their control, which affects qualification for EIS.

In summary, tax reliefs under EIS are as follows:

  • income tax relief for the investor of up to 30% of the amount invested (see the Enterprise investment scheme income tax relief guidance note)
  • disposals of EIS shares after three years may be free from CGT (see the EIS and VCT shares guidance note (subscription sensitive))
  • CGT deferral relief allows investors disposing of any asset to defer gains against subscriptions in EIS shares (see the Enterprise investment scheme re-investment relief guidance note)
  • losses on EIS shares may be offset against taxable income (see the Losses on shares set against income guidance note)
  • EIS investments should qualify for IHT BPR after two years of ownership (see the Business property relief (BPR) guidance note)

The SEIS was introduced on 6 April 2012 in order to provide greater tax incentives to smaller and earlier stage businesses. SEIS is heavily based on EIS. The legislation introduced by Finance Act 2012 contains many of the same features and has been subject to the same modifications such as those in FA 2018, s 14 introducing the risk-to-capital condition.

The key differences in the incentives available are that:

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