Have you invested in Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), or Venture Capital Trust (VCT) shares, or are you looking to invest in EIS, SEIS, or VCT shares? Martax Accountants has a team of qualified chartered certified accountants with in-depth knowledge of EIS, SEIS and VCT schemes and the associated tax reliefs. Our team of specialist EIS Tax accountants and advisors can help with pre and post-investment tax relief advice and compliance to ensure that you maximise your tax savings.
There are tax reliefs available on the subscription of shares in qualifying EIS, SEIS and VCT companies. If the timing and amount of investment has been properly planned, this can result in significant tax savings.
Here is a summary of the tax reliefs available on these investments:
Enterprise Investment Scheme (EIS)
Enterprise Investment Scheme is a scheme that was introduced in 1994. The scheme aims to help high-risk trading companies raise finance. The government introduced it to encourage individuals to invest in certain companies by giving them income tax reliefs for the amount invested. Tax relief is available for the lower of the amount subscribed in qualifying EIS shares or £1 million unless there is investment in a knowledge intensive company. The individual’s tax liability will be reduced by 30% of the lower of amount subscribed or maximum investment eligible for relief.
- Income tax relief is available at a flat rate of 30%
- The maximum investment qualifying for EIS income tax relief is £1 million in a tax year
- It is possible to carry back an EIS subscription to the preceding tax year
- There will be withdrawal of income tax relief if the investor disposes of his shares in the SEIS within three years of issue
- Any gain on the sale of EIS shares is exempt from CGT if certain conditions are satisfied at the date of disposal
- Any loss on the sale of EIS shares is allowable for capital gains tax purposes
- There is also reinvestment relief available if an individual sells an asset and reinvests the sale proceeds in acquiring qualifying EIS shares
How does EIS Income Tax Relief work?
The maximum amount eligible for relief is £1 million if there are no investments in knowledge investment companies. If there is investment in knowledge investment companies, the maximum eligible investment is £2 million provided that the investment non knowledge investment companies are not more than £1 million.
EIS Income Tax Relief – Example:
Let's suppose Mr X invested £10,000 in the Enterprise Investment Scheme (EIS) on 15 May 2022. His earnings from his job during the tax year 2022/23 is £80,000. The PAYE tax of £19,432 was deducted from his salary at source.
His EIS Income tax relief on his investment would be calculated as follows: click here to view the calculations
Who can claim EIS Tax Relief?
To be eligible to claim for EIS tax relief, the investor must not be connected with the EIS company in the period starting two years prior to the issue of shares and ending three years after the issue of shares. The investor can be connected with EIS company if he or his associate is an employee of the company. The EIS investor must own the shares for three years otherwise, the relief will be withdrawn. Our team of expert EIS tax accountants can provide you guidance to ensure that you meet the conditions to be eligible to get EIS tax relief.
Capital gains Tax on sale of EIS Shares
If the qualifying EIS shares are held for three and then sold at a gain, there will be no capital gains tax provided that the shares have been sold after three years and the EIS investor obtained EIS income tax relief and not withdrawn.
Example – CGT on sale of EIS shares
Mr X purchased 2,000 shares in a EIS qualifying company on 15 December 2020 and paid £10,000 for them. He received EIS income tax relief of £3,000 (£10,000 x 30%). Mr X sold the shares for £15,000 on 19 March 2024.
In the above example, the shares were held for three years; therefore, the EIS investor obtained income tax relief and was not withdrawn. The capital gains of £5,000 (£15,000 - £10,000) is tax free – No CGT is payable on this disposal.
Seed Enterprise Investment Scheme (SEIS)
- Income tax relief is available at a flat rate of 50%
- The maximum investment qualifying for SEIS income tax relief is £100,000 in a tax year
- It is possible to carry back a SEIS subscription to the preceding tax year
- There will be withdrawal of income tax relief if the investor disposes of his shares in the SEIS within three years of issue
- Any gain on the sale of SEIS shares is exempt from CGT if certain conditions are satisfied at the date of disposal
- Any loss on the sale of SEIS shares is allowable for capital gains tax purposes
- There is also reinvestment relief available if an individual sells an asset and reinvests the sale proceeds in acquiring qualifying EIS shares
Venture Capital Trust (VCT)
- Income tax relief is available at a flat rate of 30%
- The maximum investment qualifying for VCT income tax relief is £200,000 in a tax year
- There is no carry back as with EIS and SEIS
- Dividends received on first £200,000 invested in VCT shares is exempt from tax
- There will be withdrawal of income tax relief if the investor disposes of his shares in the VCT within five years of issue
- If the shares are sold at a profit, any gain is exempt from CGT
- Losses incurred on the sale of VCT shares are not allowable for capital gains tax purposes
