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Subject to detailed conditions, the Enterprise Investment Scheme (EIS) gives income tax relief to individuals at 30 per cent on qualifying investments in unquoted trading companies up to £1m per annum, and exempts from Capital Gains Tax any gain on the disposal of qualifying shares on which income tax relief has been given (and not withdrawn). Where a loss arises on disposal, the investor can claim income tax relief for the amount of the loss (less any income tax relief given) against the income of the year of disposal or previous year, instead of being set off against capital gains. While investors have to be unconnected with the company two years before the issue of the shares and for three years afterwards, this does not prevent them becoming paid directors subsequently. Only those companies or groups with gross assets of less than £15m before an investment and fewer than 250 employees can participate in the scheme.
In addition, capital gains arising on other assets may be deferred against acquisitions of investments meeting the qualifying conditions under the EIS. The rules prohibiting connection with the company do not apply for this purpose. There is also anenhanced scheme aimed at increasing investment in the smallest companies. (See seed enterprise investment scheme SEIS.)