Enterprise Investment Scheme (EIS) is a UK–based launched in 1994 to encourage investors to support young and innovative companies with potential for high growth. It’s a long-established part of the UK tax and investing skyline that has invested over 18 billion pounds into emerging businesses.
EIS is regarded as one of the best investment schemes which have remained in place ever since its launch. You can access various resources that guide how EIS works. Read on to learn the reasons that have made it sustainable.
1) EIS Is Open To Everyone
Everyone is entitled to EIS tax relief and gets the same return rates per pound invested, whether 10 pounds or 10,000 pounds.
2) EIS Offers Generous Income Tax Breaks
The EIS is characterized by its highly appealing income tax breaks to investors. Investors supporting EIS-eligible companies receive income tax relief worth 30% of the value of their investment. Investors injecting up to one million pounds either into one business or several get a tax break worth up to 300,000 pounds.
3) EIS Offers Loss Relief
As much as you lose money, you can save up to 60% of the initial investment between EIS’s tax relief measures. For example, with an investment of 20,000 pounds, you get 6,000 pounds of income tax relief. If the company closes down, you will have 14,000 pounds at risk. If you’re taxed at 45%, you’ll get back 45% of your at-risk capital, 6,300 pounds. Your actual loss would be 7,700 pounds.
4) Double Benefit For Knowledge Investors
Any investor injecting funds into “knowledge-intensive” businesses, which the government advocates as vital to the economy, gets twice the standard allowance. Investors can benefit from up to 600,000 pounds in income tax relief as long as they have injected 1 million pounds of their yearly EIS investment into knowledge-driven firms.
5) Access To Unlimited Capital Gains Deferral
It’s possible to defer 100% capital gains tax liabilities from other investments to EIS for the life of the investment. This covers gains arising 36 months before and 12 months after a fund investment.
6) Exemption From Inheritance Tax
If you invested money into an EIS-qualifying company, you’d be exempted from inheritance tax as long as the EIS shares held at death have been owned for at least two years.
7) Flexibility On Income Tax Relief
EIS allows 30% income tax relief, which can be claimed for the year of investment or the previous tax year. For the investors, this is an advantage. For instance, if they recently left their business and have a significant amount of capital to invest, they can use EIS allocation for the previous and the current year.
8) EIS Allows Attraction Of Numerous Investments
This means that you can make up to one million pounds by investing in EIS-qualified companies. You get to benefit not only from all the relevant tax reliefs on every investment, but you also get an opportunity to expand your gains and reduce your vulnerability to risk.
9) EIS Carry-Back Rule
This means that shares can be treated as issued in the previous tax year as long as the EIS relief limit for that year is not exceeded. For example, if you put 500,000 pounds into an EIS-qualified company in 2018/19, you can carry back 30%, which is 150,000 pounds of income tax relief to be set against your 2017/18 income tax bill.
The tax benefit also means that investors can inject up to two million pounds into one tax year without going over their yearly ceiling by carrying back one million to the former tax year.
10) EIS Opens To More Advantages Of Startup Investment
Startup investment through EIS allows sharing of knowledge and expertise by investors. Investing in a sector with which you’re well conversant will enable you to share valuable insights with the company’s founders, thus directly influencing your investment outcome. Your investment could also support innovation and the creation of jobs.
Together with the reasons discussed herein, investing in EIS is worthwhile because of one outstanding factor; it’s a well-established scheme. It has helped businesses grow their capital for over two decades and to get about 1.65 million pounds.
The tax-related incentives make EIS work better in that the risk that comes with investing capital in a company is reduced. Even with the range of tax benefits, it’s advisable for all investors considering EIS to get professional guidance on all matters regarding taxation before deciding whether to invest.