VCM16050 - EIS: income tax relief: supplementary and general: EIS knowledge-intensive approved investment fund as nominee

ITA07/S251

The legislation provides for relief to be available where an individual subscribes through a nominee (see VCM16040), including where the nominee is an investment fund manager.

Managers of the Fund

The managers of an EIS fund may, if they wish, apply for the fund to be approved by HM Revenue and Customs (HMRC). The manager of the fund should be a person authorised to carry on investment business by the Financial Services Authority under the FSMA.

The approved fund rules have been amended, with effect from 6 April 2020, to focus investments on EIS knowledge-intensive companies:

  • Of the fund’s capital at least 80% must be invested in companies that were knowledge-intensive at the time of the share issue, see VCM8162+
  • The fund must have invested 50% of its capital within 12 months of the date the fund closed and 90% within 24 months.

Approval of a fund carries certain limited advantages for the individual participants:

  • provided that the fund meets the investment requirements noted above, the shares are treated as issued on the closing date of the fund. This date will always be earlier than the actual date of investment and the investor also has the option of treating the shares as issued in the tax year before the fund closed
  • the fund manager retains the compliance certificates, forms EIS3, and provides the investor with a single certificate, form EIS5, in respect of all their investments through the fund.

To obtain approval the fund manager must provide HMRC with the information as identified in the Guidelines for Approved EIS knowledge-intensive Funds. These Guidelines explain the criteria that determines whether a fund will be approved.

The fund manager will hold the shares subscribed for and issued to the manager, acting as nominee of each individual participant. The memorandum issued to individual participants should contain a clear statement of this relationship. The individual participant will be the beneficial owner of the shares and be entitled to a whole number of shares in each company, not a proportionate interest in all the shares in which the fund capital is invested.

The fund manager will be issued with forms EIS3 by the knowledge-intensive companies invested in. The manager will use form EIS5, which is supplied to them by HMRC, Business, Assets and International, CT Innovation & Growth Team, to certify to each participant that they hold certificates of relief on forms EIS3 relating to subscriptions for shares in the companies listed on that form and to notify the number of shares held on behalf of that participant. A Fund manager must not issue form EIS5 without HMRC’s authorisation.

Fund managers wishing to enquire about the circumstances in which approval may be given should contact HMRC, Business, Assets and International, CT Innovation and Growth Team (CTI&G):

Venture Capital Schemes

Room 3C/21

100 Parliament Street

London

SW1A 2BQ

or by email Venture Capital Schemes Policy at: venturecapitalschemes.policy@hmrc.gov.uk

For individuals investing through an approved EIS fund:

  • You will be the beneficial owner of the shares, being entitled to a whole number of shares in each company and not just a proportionate interest in all the shares in which the fund capital is invested. You will need to read through the Guidelines for Approved EIS knowledge-intensive Funds
  • You are responsible for making your own claims to tax relief, see Enterprise Investment Scheme – Income Tax relief (Self Assessment helpsheet HS341)
  • You will receive an EIS5 form from the fund manager to claim the tax reliefs, see VCM14130+. You cannot claim tax relief until you have received this form
  • The EIS5 form will include Approved EIS KI Fund reference number for the EIS Knowledge-intensive Fund as well as the Unique Investment References (UIR) for each company invested in. You will need to include these references as supporting information with any claim to relief
  • As your subscriptions are made through the medium of an approved investment fund the relief is available for the tax year in which the fund closes (the shares are treated as issued on the date when the fund closed)
  • Alternatively, you may elect to have some or all of the relief in the tax year preceding that in which the fund closed. There is no limit on the amount which may be carried back, but the relief available in the earlier tax year will be subject to the overriding limit for relief for that year (see VCM10530)
  • For example, you invest in an Approved knowledge-intensive fund that closes on 5 April 2022 – this is within the tax year 2021/22. Over the next 10 months, during the tax year 2022/23 all of the fund capital is invested in qualifying EIS Knowledge-intensive companies. The fund manager provides the necessary investment information to HMRC and receives authority to issue EIS5 certificates to the investors in the fund. Once you receive your EIS5 from the fund manager you are entitled to claim relief in the 2021/22 tax year or to carry back the income tax relief to the 2020/21 tax year.