The Enterprise Investment Scheme regime makes early stage investing particularly attractive for UK resident tax payers.
Committed Capital's EIS Portfolio Service is open for new investment.
Companies that qualify for EIS (criteria include being based in the UK with fewer than 250 employees) can take up to £5 million of EIS funds in any 12 month period.
Below is a short summary of EIS tax benefits. These benefits depend on your individual tax position which may be subject to change in the future. If you are unsure of your own potential tax liabilities, you should seek professional advice from a qualified tax adviser.
30% UPFRONT TAX RELIEF
You will receive 30% tax relief on the amount invested in EIS qualifying companies against your income tax bill for the year of investment, up to a maximum of £2 million invested (provided that any amount above £1m is invested in Knowledge Intensive Companies). In addition, if you want to treat some or all of the shares subscribed for in the current tax year as though they were subscribed for in the previous tax year, then you may do so up to a further £1 million (reduced by any EIS investments already made in that tax year).
Please note, with regard to our Committed Capital EIS Portfolio Service, not all your investments will necessarily fall in the same tax year unless you instruct us to do so.
CAPITAL GAINS TAX (CGT) DEFERRAL
CGT, such as from the sale of shares or a second property, can be deferred for the life of the EIS investment. You can defer any gains made in the three years prior to, or the year following, the date your investment into the EIS companies is made.
At the current rates of income tax, up to 45% loss relief may be available on any holdings that are realised at a loss net of initial income tax relief, helping to offset the effect of any assets which underperform in the overall portfolio. The investor can choose whether to set the loss relief against other gains made now or in the future, or against income for the year in which the loss arises or the previous year.
UP TO 100% INHERITANCE TAX (IHT) RELIEF
The companies in which we invest will also qualify for Business Property Relief. This means that investments made through the Committed Capital EIS Portfolio Service can be exempt from inheritance tax (IHT) after just two years (from the point at which the investment into the underlying EIS company is made). In order to qualify, the investments must also be held at the time of death.
TAX FREE GROWTH
All capital gains made from EIS investments are tax free (when held for the minimum three year holding period). Given the higher returns targeted by the Committed Capital EIS Portfolio Service, this is an important tax benefit, allowing investors to include smaller companies in their investment portfolio in a highly tax efficient manner.
“KNOWLEDGE INTENSIVE” CLASSIFICATION
An EIS qualifying company may apply for an additional classification of being “knowledge intensive”. The main criteria for being knowledge intensive are as follows:
At least 15% of operating costs should have been spent on innovation and R&D within one of the last 3 years preceding the EIS share issue
At least 10% of all the preceding years’ operating costs should be R&D
The intellectual property (IP) thus created should be useable within 10 years of the share issue, forming the larger part of their business going forward, and retaining ownership of such IP
At least 20% of employees should hold a higher education degree and be directly involved in R&D
In the event that an EIS company is additionally classified as knowledge intensive by HMRC, you may then invest a further £1 million into these companies, and you will receive 30% tax relief on the amount invested against your income tax bill for the year of investment. The carry back to the previous year also can be applied (from 6 April 2019), as can the additional tax benefits of CGT Deferral, Loss Relief, IHT Relief, with the proviso that the shares are held for the minimum of three years post investment.