Enterprise Investment Schemes (EIS)

The most tax advantageous investment?

What is an Enterprise Investment Scheme?

An EIS, to give the Enterprise Investment Scheme its more common name, is a tax efficient scheme set up to encourage investment into small, unquoted trading companies.

This obviously puts it at the top end of the risk scale, but in return you get attractive tax breaks. Similar to a VCT, an EIS company can employ a maximum of 50 people at the time of investment and receive up to £2 million in tax efficient funding in any 12 month period. Certain activities preclude companies from offering EIS relief, examples include forestry, farming and hotels.

• Types of Enterprise Investment Schemes
• What are the risks?
• Who are they for?

What are the tax breaks?

The EIS is probably the most tax advantageous investment available to UK investors. Relief is potentially available from income tax, capital gains tax and inheritance tax. Potential investors should remember that tax rules can change. Indeed the recent changes to CGT appear to have created a very attractive opportunity for those with 40% capital gains tax bills to reduce them to 18%. However the exact situation will depend on your circumstances and the rules can change again in the future.

• Tax & Enterprise Investment Schemes

Disposal

EIS investments are unquoted companies. For this reason it is highly unlikely that investors will be able to exit in the short or medium term. If it is a single company, then an investment will not be realised until either a flotation or a sale of the business. If it is an approved fund, then any sale will be at the discretion of the fund manager. However, in all instances EIS should be considered a very illiquid investment.