Enterprise Investment Scheme and Seed Enterprise Investment Scheme

The UK government introduced the Enterprise Investment Scheme (EIS) in 1994 to encourage investment in smaller companies. Due to the additional risks associated with investing into smaller companies compared to large ones, an EIS comes with a number of valuable tax benefits. These include:

• Up to 30% income tax relief, provided that the investment is held for a minimum of three years

• Potential for 100% relief on Inheritance Tax (available after holding the investment for 2 years and provided that the share are held at the time of death).

• Opportunity to defer a capital gain and eliminate it entirely if EIS shares are held at death

The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early stage companies raise finance by offering tax reliefs to individual investors who purchase new shares in these companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate.

SEIS applies for those shares issued on or after 6 April 2012. The rules have been designed to mirror those of EIS as it is anticipated that companies will go on to use EIS after an initial investment under SEIS. Tax relief is similar to that of an EIS but currently at a higher level.

Income Tax relief is available to individuals who subscribe for qualifying shares in a company that meets the SEIS requirements, and who have a UK tax liability against which to set the relief. Investors don’t need to be UK resident.

The shares must be held for a period of 3 years, from date of issue, for relief to be retained. If they are disposed of within that 3 year period, or if any of the qualifying conditions cease to be met during that period, relief will be withdrawn or reduced.

Relief is available at 50% of the cost of the shares, on a maximum annual investment of £100,000. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it. A claim for relief can be made up to 5 years after the 31 January following the tax year in which the investment was made.

THESE ARE SPECIALIZED INVESTMENTS AND ADVICE SHOULD THEREFORE BE SOUGHT BEFORE CONTEMPLATING INVESTMENT.