Enterprise investment scheme ― introduction

By Tolley

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

Enterprise investment scheme ― introduction
Commercial and tax risk
Minimising tax risk
HMRC
Prospectuses
Investments through EIS funds

The EIS offers substantial tax incentives to investors in companies, which qualify.

In summary, tax reliefs under EIS are as follows:

•income tax relief of up to 30% on the amount invested
•disposals of EIS shares after three years may be exempt from capital gains tax
•capital gains tax deferral relief allows investors disposing of any asset to defer gains against subscriptions in EIS shares
•losses on EIS shares may be offset against taxable income
•EIS investments should qualify for IHT business property relief after two years of ownership

Detailed information on these reliefs is included in the Enterprise investment scheme income tax relief guidance note.

The Government is planning to introduce a new EIS fund for knowledge-intensive companies from 6 April 2020. This is discussed at the end of this guidance note.

Commercial and tax risk

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.

For details of the conditions, see the Conditions to be met by the EIS issuing company and Conditions to be met by the EIS investor guidance notes.

Terms of engagement for EIS work should be carefully drafted, in particular because conditions are tested on an on-going 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.

An important part of the process will be to advise the investor of the risks involved with investments under the EIS from a tax perspective. The main thing to make the investor