Guidance

HS341 Enterprise Investment Scheme — Income Tax relief (2024)

Updated 6 April 2024

This helpsheet explains how to claim Income Tax relief under the Enterprise Investment Scheme. It also gives some guidance on the circumstances in which an investor is eligible to make a claim.

There are several references below to form EIS3, ‘Enterprise Investment Scheme Certificate and claim to relief’.

This form is used by the company invested in to certify that certain conditions of the scheme are satisfied. If, exceptionally, your investment was made through an approved knowledge-intensive investment fund, the company will issue form EIS3 to the fund manager instead, and you will receive form EIS5, ‘Certificate and claim to relief for investment through an approved fund’ from the manager.

1. The circumstances in which you can claim the relief

If you’ve received a form EIS3 or EIS5 for any investment you made in shares issued during the year ended 5 April 2024 (or, in some cases, during the year ended 5 April 2025), you can claim relief, provided you’re eligible.

2. How to claim the relief

Enter in box 2 in the ‘Other tax reliefs’ section on page Ai 2 of the additional information pages, the total amount of the subscriptions on which you’re now claiming relief.

Include any amount for which you received relief by way of an increase in your PAYE code or a reduction of a payment on account. But exclude any amount for which you’re claiming relief for the previous year and not the current year.

The maximum amount on which relief can be claimed in a tax year is £2 million, but any amount over £1 million must be for shares issued by one or more knowledge-intensive companies (KIC).

Your EIS3 will identify if the company was a KIC at the time of your investment.

You must enter details of each investment in the ‘Any other information’ box, box 19 on page TR 7 of the tax return.

The details required for each investment are:

• the Unique Investment Reference (UIR) as shown on the certificate
• the name of the company invested in
• the amount on which you’re claiming relief for this year
• the date of issue of the shares
• if you’ve subscribed more than £1 million for shares on which relief could be claimed, or more than £2 million where investments over £1 million are in KIC, how you want the relief attributed to them — read ‘How much relief you get for your subscriptions for shares’.

List all subscriptions on which relief is claimed, even if you had to restrict the amount you entered in box 2 in the ‘Other tax reliefs’ section on page Ai 2 of the additional information pages because it would have exceeded the maximum. We may ask to see form EIS3 (or EIS5) to support your claim, so keep it safe.

If you made an investment in shares issued during the year for which you have not yet received a form EIS3 or EIS5, you cannot claim relief for that investment. You must wait until you have received a form. If you receive the form after you’ve sent your tax return, complete the claim form inside the EIS3 or EIS5 and send it to us.

3. Income Tax relief claims

You’re eligible to claim the relief unless any of the following apply:

• you do not qualify for relief
• you did not subscribe for the shares for commercial purposes, or you subscribed as part of a scheme or arrangement for avoiding tax
• you’ve got a loan which would not have been made, or would not have been made on the same terms, were it not for the investment in the shares
• an option has been granted to you under which you can require someone else to buy the shares from you
• you are affected by the ‘replacement capital’ rules which apply to previous owners of the company’s business
• arrangements were made in connection with the share issue which:
  • secure a return on your investment
  • will allow you to dispose of your shares at some future date
  • provide protection against the normal commercial risks attaching to an investment of this kind
• you were issued shares on or after 18 November 2015 and already held other shares in the company that were not:
  • subscriber shares issued to you
  • shares for which you have received an EIS3

To qualify for relief you must not (except in one set of circumstances) have been ‘connected’ with the company at any time in the period starting 2 years before the shares were issued.

You’re connected with a company at any time when you, or an associate of yours:

• is an employee, partner or ‘paid director’ of the company (or of any subsidiary of the company)
• controls the company or possess more than 30% of the ordinary share capital or voting power in the company, or would be entitled to more than 30% of the assets of the company in a winding-up

For this purpose, an associate includes a spouse or civil partner, lineal ancestor or descendant, a business partner and certain persons with whom the individual has connections through a trust.

A paid director is one who receives, or is entitled to receive, any form of payment from the company other than certain items such as reimbursements of expenses allowable for tax purposes.

The circumstances in which you can qualify for relief despite being connected with the company are where the connection is solely by virtue of your, or your associate, being a director of the company (or of any subsidiary of the company), who is paid for services rendered as a director or employee, and:

• at the time the shares are issued you have not been so connected with the company
• the issue of shares is made before the termination date of the last issue of eligible shares before you became so connected with the company
• the issue of shares is made before the termination date of an issue of shares for which you qualified for relief under the Seed Enterprise Investment Scheme (SEIS)

4. Shares that were issued to you and someone else jointly

Where shares are issued to joint owners, they are treated as if each of them had subscribed the same amount for an identical number of shares. For example, if £2,000 is subscribed for 2,000 shares in the name of a married couple, each is regarded as having subscribed £1,000 for 2,000 shares. That is so even if one of them paid the whole amount. To claim relief, each joint owner should get form EIS3 from the company.

5. Tax relief for a different year — your choices

The general rule is that the relief is available for the tax year in which the shares are issued or, where you have invested in an approved knowledge-intensive investment fund, the year in which the fund closed. But, if you choose, you can treat some or all of the shares as issued in the previous year and claim relief in that previous year, subject to the maximum limit for the year. You’ll find the date of issue of your shares recorded on form EIS3 and the date the approved fund closed on form EIS5.

If you want to make use of this option:

• enter on your tax return the amount which you want to claim for in tax year 2023 to 2024, including any amounts invested in tax year 2024 to 2025 for which you already hold a valid EIS3 or EIS5 and which you want to have relieved in tax year 2023 to 2024 — remember, the maximum you can claim in total for tax year 2023 to 2024 is £2 million but no more than £1 million can be claimed for shares that are not in KIC
• if you want to treat some or all of the shares subscribed for in tax year 2023 to 2024 as though subscribed for in tax year 2022 to 2023, complete the claim form in form EIS3 (or EIS5) to show the amount on which you are claiming relief for the previous year and send it to us

6. How much relief you get for your subscriptions for shares

Subject to what follows, you can get relief at the rate of 30% on the aggregate of the amounts claimed for shares issued to you in tax year 2023 to 2024 (after taking account of any claims to treat shares as issued in the year prior to their actual issue).

You cannot get relief on more than £2 million in a tax year and any amount in excess of £1 million can only be for investments in KIC. However, you can treat some or all of the shares as being issued in the previous year and claim relief in that previous year, subject to the maximum limit for the year. If your tax liability is not high enough to absorb all the relief, then you have to forgo the excess. In either of these cases, you can opt for the relief to be attributed to certain shares, or to be attributed proportionately to all the shares.

For example, if you had subscribed £250,000 for shares in each of 4 companies, but you’re limited to claiming relief on £500,000, you could opt for relief to be given at 30% on the subscriptions for all the shares in 2 of those companies, or you could opt for relief to be given at 15% on all the shares in the 4 companies. You can also treat some or all of the shares of each of these 4 companies as issued in the previous year and claim relief depending on your tax liability for that year. You may want to take professional advice on which course to take.

Also, if you’ve received value from the company, the amount on which you claim relief must be restricted (the company will have stated the amount on form EIS3).

The notes on forms EIS3 and EIS5 explain situations when your relief might be withdrawn or reduced, and in which you would be obliged to make a report to us.

7. Contact

Online forms, phone numbers and addresses for advice on Self Assessment.