EIS and VCT shares

By Tolley

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

  • EIS and VCT shares
  • Enterprise Investment Scheme
  • Venture capital trusts

The enterprise investment scheme (EIS) and venture capital trusts (VCT) are tax efficient investments sanctioned by the Government in order to encourage investment in UK business.

The tax reliefs are similar but not identical. Some investors consider VCTs to be more attractive as the risks are spread by indirectly investing in a number of unquoted companies rather than investing direct in one company, as with an EIS investment.

Enterprise Investment Scheme

EIS is the name of a scheme which encourages individuals to invest money in shares issued by qualifying unquoted trading companies with a permanent establishment in the UK.

A subscription for eligible shares of a qualifying EIS company is a tax efficient investment for the individual. He can benefit from the following tax reliefs:

  • income tax relief of 30% on the amount invested
  • any capital loss on the EIS shares is an allowable loss for capital gains tax (CGT) but gains are exempt (if certain conditions met)
  • the investment can be used to defer CGT on the sale of any asset

These reliefs are considered in further detail in the Enterprise investment scheme tax relief and Enterprise investment scheme re-investment relief guidance notes. The conditions for a valid investment are discussed in the Conditions to be met by the EIS issuing company and Conditions to be met by the EIS investor guidance notes.

Tax-free capital gains

If EIS shares are sold at a profit, the capital gain is exempt from CGT. However, if a loss is incurred this is an allowable loss for capital gains tax purposes. This is unusual in CGT, as normally where assets are exempt the gains are not chargeable and the losses are not allowable. The mismatch for EIS

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