Understanding Enterprise Investment Scheme Relief (EIS)

Enterprise Investment Scheme (EIS) relief was introduced to encourage investment in smaller, private British businesses. To support this, several tax incentives are available, making EIS an attractive option for investors.

What tax reliefs are available?

The Enterprise Investment Scheme relief offers several tax advantages, including:

Income Tax Relief

The main benefit is a 30% income tax reducer. This can be claimed in the year of investment or carried back to the previous tax year. However, EIS relief cannot be carried forward.

The maximum investment that qualifies for tax relief is £1 million per tax year.

Capital Gains Tax (CGT) Exemption

If EIS shares are held for at least three years before being sold, any gains made on them are free from CGT. However, income tax relief must have been claimed on these shares, and the relief must not have been withdrawn.

CGT Deferral Relief

Capital gains made on other assets can be deferred if the proceeds are reinvested into EIS shares. This applies if the investment was made within one year before disposal or up to three years after.

For sales made after 30 October 2024, the CGT rate on these deferred gains will be:

• 24% for higher-rate taxpayers
• 18% for basic-rate taxpayers

EIS Loss Relief

If EIS shares result in a loss, investors can offset this loss against their income tax instead of CGT. The loss relief is calculated after deducting any previously claimed 30% income tax reducer.

Inheritance Tax (IHT) Relief

EIS shares held for at least two years at the time of death can qualify for 100% relief from Inheritance Tax (IHT) up to 5 April 2026. After this date, up to £1 million will still qualify for 100% relief, with the excess benefiting from 50% relief—resulting in an effective IHT rate of 20%.

Seeking professional advice on EIS relief

While Enterprise Investment Scheme relief offers valuable tax benefits, there are specific conditions that must be met to claim these reliefs. If you are considering investing in EIS shares or have already done so, our tax specialists can help ensure you maximise the available reliefs.

We provide expert tax advice, ensuring that you navigate EIS relief effectively. Please get in touch to discuss how we can assist you.

Please note: This blog only considers the tax implications of EIS investments and does not constitute investment advice.