EIS investments offer income and capital gains tax reliefs. There is 30% income tax relief for up to £500,000 invested per person per year. Also, where income tax relief is claimed, any growth in the value of your EIS investment can be realised capital gains tax free if the shares are held for a minimum of three years.
An individual can invest £500,000 a year and this will double to £1m in April. The definition of "qualifying" companies will also broaden to allow larger companies, with fewer than 250 employees and gross assets of no more than £15m to qualify.
An offshoot of the EIS, known as the Seed Enterprise Investment Scheme (SEIS), was announced by the Chancellor of the Exchequer at the end of November. The scheme is more generous than the existing EIS scheme, offering 50% income tax relief on investment. There is also a capital gains tax holiday on assets sold in 2012/13, where the gain is reinvested into SEIS. SEIS companies must meet certain criteria to qualify. For example, they must be no more than two years old and trade in certain qualifying industries. Up to £100,000 per year can be invested by each individual and the scheme is intended to be introduced from 6 April 2012.
Besides EIS, other tax breaks such as the five-year business rate holidays in the new Enterprise Zones, enhanced R&D for smaller companies, and the upcoming patent box regime, which allows profits generated from UK patents to be taxed at only 10%, as well as reduced red tape for life sciences and digital media businesses, can prove extremely useful.
These new tax reliefs have entrepreneurs in their sights, encouraging both companies and individuals to plan their tax affairs efficiently to ensure that they are able to take full advantage of the reliefs.
To discuss how we can help you make the most of the EIS tax reliefs, please call Sue Daye, Tax Partner, on 01242 234421.