Enterprise Investment Scheme (EIS) – MICAP

The following has been printed solely for on 21 November 2024, and should not be relied upon by any other party Try MICAP for free Login No notifications Welcome back Research Tools Overview Investment Listing Filter Compare Build Portfolios Save your Research Your Activity Log Activity Log FAQ MICAP Reviews Review Process MICAP Impact Scores Other Adviser Services Overview Panel Support Services Client Reporting Digital Application Forms Market Information Overview EIS/SEIS Market Snapshot VCT Market Snapshot Enterprise Investment Scheme (EIS) Seed Enterprise Investment Scheme (SEIS) Venture Capital Trusts (VCTs) Tax Treatment (EIS, SEIS, VCT) Business Relief (BR) Key Risks
Investment Guide INVESTMENT GUIDE Overview EIS/SEIS Market Snapshot VCT Market Snapshot Enterprise Investment Scheme (EIS) Seed Enterprise Investment Scheme (SEIS) Venture Capital Trusts (VCTs) Tax Treatment (EIS, SEIS, VCT) Business Relief (BR) Key Risks The Enterprise Investment Scheme (EIS) is a government initiative, introduced in 1994, created to encourage investment in small and medium sized companies which by their nature are generally considered high risk. By investing in new shares in these companies, private investors can enjoy a range of tax reliefs, which are designed to help lower the overall risk profile of the investment. Investments are either made directly into a pre-identified single company or into an EIS fund. Instead of being structured as a pooled investment, EIS funds commonly refer to a collection of investments in EIS qualifying companies, purchased on behalf of investors under the terms of a discretionary management contract. The investee companies will be chosen to fit the parameters of a common investment policy. In order to qualify for EIS benefits, the company and the investor must meet certain criteria as defined by HMRC, including that that the shares must be unquoted at the time they are issued. This means that the company’s shares cannot be listed on the Main Market of the London Stock Exchange or any other “recognised” stock exchange. After a minimum three-year holding period, the company can subsequently become quoted without the investors losing relief (subject to there having been no arrangements for it to become quoted when the shares were issued). For the purposes of the EIS rules, the Alternative Investment Market (AIM) and the Aquis Exchange are not considered to be “recognised” exchanges, so a company listed on those markets can raise money under the EIS if it satisfies all the other conditions. EIS benefits include the following tax breaks: tax free capital growth income tax relief at up to 30% the value of the shares may qualify for 100% business relief (BR) from inheritance tax (after a minimum two-year holding period, unless the shares are “replacement business property”)* potential for additional income tax relief on losses potential for Capital Gains Tax deferral *Based on current rules. As was announced in the Autumn Budget 2024 there are various changed proposed to BR. Please see the Business Relief section for more information. In order to maintain the tax benefits available under EIS, an investor must hold their shares for three years from the date of issue (or, if later, three years after the start of the qualifying trade) and the company must continue to meet the qualifying conditions throughout this period. Failure to do so, could result in a withdrawal of the tax reliefs. Being an equity investment, investors should be aware that returns are not guaranteed, and the original amounts invested could be lost in part or in their entirety. Given that small companies can take time to grow, and an exit may not be immediately apparent for shareholders, EIS investments should be considered high risk, long-term investments, being at least three to five years, if not longer. Furthermore, the availability of tax benefits should not distract investors from the need to properly consider the risks versus potential returns of any given opportunity. As with any alternative investment, tax should not be the driving reason behind an individual’s reason decision to invest. For further details of the investment risks please see the Key Risks section of this website and for further details of the tax advantages please see the Tax Treatment section of this website. Tax treatment is dependent on the circumstances of each individual and may be subject to change in the future.
The MICAP Impact Assessment process is based on the Manager’s answers to our Impact Assessment Questionnaire, which may not be verified or audited by MICAP. The resultant MICAP Impact Scores should not be taken as financial advice or a complete and comprehensive analysis of the risks of investing in the investment, which are usually set out in the Information Memorandum, Prospectus or Brochure supplied by the Investment Manager. Alternative and unquoted investments are inherently high risk and invested capital is at risk. Tax ramifications may vary depending on the investor's personal circumstances. MI Capital Research Ltd is an Appointed Representative of Thornbridge Investment Management LLP (FRN: 713859), which is authorised and regulated by the Financial Conduct Authority.

The Enterprise Investment Scheme (EIS) is a government initiative, introduced in 1994, created to encourage investment in small and medium sized companies which by their nature are generally considered high risk.

By investing in new shares in these companies, private investors can enjoy a range of tax reliefs, which are designed to help lower the overall risk profile of the investment.

Investments are either made directly into a pre-identified single company or into an EIS fund. Instead of being structured as a pooled investment, EIS funds commonly refer to a collection of investments in EIS qualifying companies, purchased on behalf of investors under the terms of a discretionary management contract. The investee companies will be chosen to fit the parameters of a common investment policy.

In order to qualify for EIS benefits, the company and the investor must meet certain criteria as defined by HMRC, including that that the shares must be unquoted at the time they are issued. This means that the company’s shares cannot be listed on the Main Market of the London Stock Exchange or any other “recognised” stock exchange. After a minimum three-year holding period, the company can subsequently become quoted without the investors losing relief (subject to there having been no arrangements for it to become quoted when the shares were issued). For the purposes of the EIS rules, the Alternative Investment Market (AIM) and the Aquis Exchange are not considered to be “recognised” exchanges, so a company listed on those markets can raise money under the EIS if it satisfies all the other conditions.

EIS benefits include the following tax breaks:

tax free capital growth
income tax relief at up to 30%
the value of the shares may qualify for 100% business relief (BR) from inheritance tax (after a minimum two-year holding period, unless the shares are “replacement business property”)*
potential for additional income tax relief on losses
potential for Capital Gains Tax deferral

*Based on current rules. As was announced in the Autumn Budget 2024 there are various changed proposed to BR. Please see the Business Relief section for more information.

In order to maintain the tax benefits available under EIS, an investor must hold their shares for three years from the date of issue (or, if later, three years after the start of the qualifying trade) and the company must continue to meet the qualifying conditions throughout this period. Failure to do so, could result in a withdrawal of the tax reliefs.

Being an equity investment, investors should be aware that returns are not guaranteed, and the original amounts invested could be lost in part or in their entirety. Given that small companies can take time to grow, and an exit may not be immediately apparent for shareholders, EIS investments should be considered high risk, long-term investments, being at least three to five years, if not longer. Furthermore, the availability of tax benefits should not distract investors from the need to properly consider the risks versus potential returns of any given opportunity. As with any alternative investment, tax should not be the driving reason behind an individual’s reason decision to invest.

For further details of the investment risks please see the Key Risks section of this website and for further details of the tax advantages please see the Tax Treatment section of this website. Tax treatment is dependent on the circumstances of each individual and may be subject to change in the future.

Investment Guide

The Enterprise Investment Scheme (EIS) is a government initiative, introduced in 1994, created to encourage investment in small and medium sized companies which by their nature are generally considered high risk.