The Enterprise Investment Scheme offers the following benefits for the investor; enhanced tax relief of 30% which effectively decreases the sum at risk and increases the potential return on capital invested as well as zero (CGT) Capital Gains Tax and (IHT) Inheritance Tax.

30% Tax Relief – Each investor may claim back up to 30% income tax relief on investments not exceeding £500,000 per tax year, this means that the actual net amount invested for each £1,000 is £700. Tax relief at 20% can be claimed if carried back to the previous tax year and offset against income tax. In effect with a £1m investment, £500,000 of it can be carried back to the previous tax year resulting in a total net cost of £750,000.

CGT Free – Shares that are held for 3 years or longer will be free of Capital Gains Tax on the proceeds once the client exits from the eis investment.

CGT Deferral Relief – Liability dating back 3 years or forward 1 year can be deferred indefinitely at the relevant rate applicable at the time of the original gain. In addition to the indefinite deferral, there is also the potential to reduce the liability with other tax allowances over time in order to maximise tax efficiency.

IHT Free – After two years from the investment date, EIS qualifying investments fall outside the estate for IHT purposes, this allows considerable assets to be preserved 100% intact for future beneficiaries, free from the 40% IHT tax liability.

Higher Rate Loss Relief – Losses can be offset against either income tax or capital gains tax in the current or previous tax year. In the case of a 50% income tax payer a £10,000 investment would have already received £3,000 of income tax relief, leaving £7,000 to be offset against income tax resulting in a maximum exposure of £3,500 i.e. 35 pence in the pound. Offsetting against CGT under the same scenario at a rate of 28% liability would provide an exposure of around 50 pence in the pound.

Note:

The above information is a brief summary of the key benefits of utilising EIS to mitigate taxes and is for illustrative purposes only. Clients should always seek professional advice on their individual tax position before investing in an eis.