Corporation Tax

Conditions to be met by the EIS investor

Produced by Tolley
  • 05 Nov 2021 06:52

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Conditions to be met by the EIS investor
  • Ongoing qualifying conditions
  • Income tax relief and capital gains tax exemption
  • Capital gains tax deferral relief
  • Relief for capital losses against income
  • Connection with the company
  • Financial interest
  • Employment
  • Tip
  • Pitfall
  • More...

Conditions to be met by the EIS investor

Tax reliefs under the enterprise investment scheme (EIS) can be summarised as follows:

  1. income tax relief for the investor of up to 30% of the amount invested

  2. disposals of EIS shares after three years may be free from CGT

  3. capital gains deferral relief allows investors disposing of any asset to defer gains against subscriptions in EIS shares

  4. losses on EIS shares may be offset against taxable income

  5. EIS investments should qualify for IHT business property relief after two years’ ownership

EIS reliefs are available to individuals only, except for EIS deferral relief which is also available to trustees.

EIS reliefs are available to UK residents except income tax and relief for capital losses against income, which may be claimed by non-UK residents with a UK income tax liability.

With the exception of EIS deferral relief, EIS reliefs are available only to outside investors.

For more detail on the tax reliefs, see the Enterprise investment scheme tax relief and Enterprise investment scheme deferral relief guidance notes.

Note that a sunset clause for EIS income tax relief has been introduced. This ensures that income tax relief will no longer be given to subscriptions made on or after 6 April 2025, unless the legislation is renewed by Treasury Order.

Ongoing qualifying conditions

To obtain (and retain) EIS tax reliefs, certain conditions must be met by the investor for a minimum period of time. This is usually three years from the date of the share issue but if the qualifying trade commenced later than this, then the period is three years from the date the qualifying trade commenced. For simplicity, these periods are collectively referred to throughout this guidance as ‘the minimum holding period’.

The conditions are broken down based on the type of relief available.

Income tax relief and capital gains tax exemption

The individual must:

  1. not be ‘connected’ with the company (see below)

  2. not receive a loan which would either not have been made or would

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