Definition of enterprise investment scheme

Subject to detailed conditions, the Enterprise Investment Scheme (EIS) gives income tax relief to individuals at 30 percent on qualifying investments in unquoted trading companies up to £1 million per annum, and exempts from capital gains tax (CGT) any gain on the disposal of qualifying shares on which income tax relief has been given (and not withdrawn).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 £15 million 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 an enhanced scheme aimed at increasing investment in the smallest companies. (See seed enterprise investment scheme SEIS.) [1]


enterprise investment scheme in the news

The UK Budget Day 2015 announcement reveals that rules for tax-efficient venture capital schemes have been tightened, with criteria for qualifying companies to be updated to comply with EU state aid rules.

Companies will only be able to raise £15m through the enterprise investment scheme or venture capital trusts, and will have to be less than 12 years old when receiving their first investments.

Social investments, however, received a boost with the launch of social VCTs, which will attract the same tax advantages — namely tax-free dividends and capital gains tax-free gains on disposal — as VCTs. [2]

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