EiS Investing Explained

Tax Efficient Investing

INFORMATION AND CONSIDERATIONS FOR EIS & SEIS INVESTING

The Tax Advantages

Income Tax Relief
An investor can claim back up to 50% of the value of the investment in the form of income tax relief.
Inheritance Tax Relief
An investor can claim Inheritance Tax Relief of 100% after two years of holding the EIS shares
Loss Relief
If a business performs poorly and the investment made is lost, then an investor can claim relief up to 45% of the net loss
CGT Disposal Relief
If an investor holds their shares for at least 3 years, then all gains that accrue on those shares may be exempt from Cpital Gains Tax.
CGT Deferral Relief
An investor will not have to pay Capital Gains Tax until a later date if the investor disposes of an asset and uses the gain on the asset to invest in an EIS eligible company
Carry-Back
An investor can treat some, or all of the shares received as being issued in the preceding tax year. As long as the investor had not reached the limit of EIS shares purchased in that year (£1m)

EIS Fund vs Direct Deal

  • A Direct Deal Investor will receive the tax advantage straight away on each deal. An EIS fund usually takes 6-18 months for the monies to be invested
  • Direct Deals enable an investor to build a bespoke portfolio of investments. An EIS Fund is usually a discretionary structure and control of your investments is usually in the hands of a fund manager
  • As a direct investor you will have more control over the terms of the Shareholder Agreements
  • An EIS fund manager will carry out the due diligence on the investor's behalf and will usually not allow a direct communication between the investor and the company

EIS Fund vs VCT Fund

  • Venture Capital Trusts are companies similar to investment trusts which invest in unquoted SMEs. Performance relates to the perfomance of the VCT itself and because of this, VCT funds usually look at supporting later stage companies than an EIS Fund
  • EIS funds raise their finance from individual investors and institutions to invest in a range of companies, however, are not a listed structure.
  • An investor must hold a VCT investment for 5 years and an EIS investment for 3 years, however, the the tax incentives are very similar
  • £200k can be invested into a VCT each year - £1m can be invested in to an EIS Fund each year.
Enterprise investment scheme

Advantages to a Company

  • Using the Enterprise Investment Scheme can really help raise funds to grow or develop your business by incentivising investors
  • It can provide connections with investors that have sector specific or generally business insight to help advise and accelerate your companies growth. It is always advised that advanced assurance should be obtained from HMRC to ensure that the investment is likely to qualify
  • Additional details on how to do this can be obtained from the HMRC website.

Acceleris are proud members of The Enterprise Investment Scheme Association

The Enterprise Investment Scheme Association (EISA) aims to support the UK government, businesses and investors by ensuring the Scheme continues to deliver growth to the economy by helping facilitate the investment of private investors into small and medium sized businesses.

Our own Patrick Molyneux sits on the Membership and Events Committee for EISA which focuses its efforts on organising member events and outreach to attract new members.

In June 2019 year Acceleris was honoured to receive the award for ‘Outstanding Contribution to EIS Business Services’ award and were finalists for the Chairman’s Award for 'Outstanding Contribution by an Individual' for Norman Molyneux.
EIS Investing is for UK citizens

Important to Note

  • Individuals cannot have over 30% interest in a company for income tax relief to apply
  • EIS qualifying investment must be held for at least 3 years from the date of issue
  • Maximum subscription in any given year is £1m for income tax relief purposes. CGT deferral relief is unlimited and can be claimed if interest in a company exceeds 30%
  • Income tax relief is limited to the amount which reduces the individual's income tax liability for the year to nil

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Useful Information for Companies

  • The maximum investment that you can make as an investor using the EIS scheme is £12m.  The venture company may qualify for EIS if it has fewer than £15m in gross assets, less than 250 employees or it is within 7 years since the first commercial sale.
  • The EIS funds generated must be spent within two years of being invested, the funds cannot be used to buy another business and must pose a risk of loss of capital to the investor.
  • The company must have a permanent establishment in the UK and not be trading on a recognised stock exchange.
  • If your Company owns or controls any other companies, they must be qualifying subsidiaries to be considered for EIS.
Want to learn more?

The EISA provide extensive information and support on EIS

VISIT EISA WEBSITE
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