Sunday, October 9, 2011

EIS Changes approved by the EU

The European Commission has approved for State aid purposes the increase in the Enterprise Investment Scheme (EIS) income tax relief rate to 30 per cent in respect of investments made in EIS qualifying companies on or after 6 April 2011. It has also approved the individual investment limit from £500,000 to £1 million in respect of investments made on or after 6 April 2012. Both changes were announced in Budget 2011 and the rate increase was included in Finance Act 2011. The intention is to include the increase in the individual investment limit in Finance Bill 2012.


As a reminder, the current EIS benefits are:
  • Income tax relief of up to 20% of the initial investment: if the investor holds less than 30% of the shares of the company for at least three years, he can recover 20% of upto of £500,000 per year (to the extent that that amount was paid in taxes).
  • No capital gain on earnings: whether the investment is held three years or more, no capital gains are due on exit. 
  • Capital gains report: for any capital gain realised in the last 3 years (on any other investment) and invested in an EIS tax due is reported until EIS shares are sold.
  • Tax deduction for loss: if the shares are disposed of at a loss, you can elect that the amount of the loss, less any Income Tax relief given, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of being set off against any capital gains.
  • No inheritance tax: if the actions of the EIS are held two or more years, they will not be included in the estate.
Please note however that not every vehicle qualifies for EIS. Check our article in French on our sister blog or contact us for more details.