VCM10010 - Enterprise Investment Scheme: overview of EIS reliefs

The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.

Investors should be aware that the company has to observe certain rules, not just at the time of the investment but for at least three years afterwards. If it fails to meet those rules tax relief will not be given, or, if it has already been given, will be withdrawn. Similarly companies should appreciate that investors must meet certain conditions for tax relief to be due.

The content in this manual covers a much higher level of detail compared to say a Helpsheet supporting the Self Assessment Return. If you are looking for an introduction to the main rules for these reliefs for a particular year then search for HS297 on gov.uk and select the year you are considering.

Income Tax relief

Income Tax relief is available to individuals who subscribe for shares in an EIS. See VCM10100 onwards.

Capital Gains Tax exemption

Investors who have received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for a qualifying period, any gain is free from Capital Gains Tax. See VCM20000 onwards.

Share loss relief

If the shares are disposed of at a loss, investors can elect that the amount of the loss, less any Income Tax relief given, can be set against income of the year in which the shares were disposed of, or any income of the previous year, instead of being set off against any capital gains. See VCM70000 onwards.

Capital Gains Tax deferral relief

This is available to individuals and trustees of certain trusts. The payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS qualifying company. The gain can arise from the disposal of any kind of asset, but the investment must be made within the period one year before or three years after the gain arose. See VCM22000 and VCM23000 onwards.