You can invest in a company wholly owned by yourself, providing it is engaged in a qualifying trade
The Tax Relief
- An individual with no more than a 30% interest in the company can reduce his income tax liability by an amount equal to 20% of his share subscription. The minimum subscription is £500 per company and the maximum per investor is £400,000 per annum.
- Deferral of gains realised on a different asset, where disposal of that asset was less than 36 months before the EIS investment or less than 12 months after it. (Deferral relief). This relief is not limited to investments of £400,000 per annum and can be claimed by investors whose interest in the company exceeds 30%. It is available to individuals and trustees. Where gains arise on the EIS investment, taper relief is available. Note that deferral of gains is no longer available by investing in VCTs.
- No Capital Gains Tax payable on disposal of shares after three years (after five years for investments made before 6th April 2000) provided the EIS initial income tax relief was given and not withdrawn on those shares.
- If EIS shares are disposed of at any time at a loss, such loss can be set against the investor’s capital gains or his income in the year of disposal.
EIS Investments are exempt from Inheritance Tax after two years of holding such investment.
Investment in companies that are not listed on a stock exchange often carries a high risk. The tax relief is intended to offer some compensation for that risk. The EIS offers both income tax and capital gains tax reliefs to investors who subscribe for shares in qualifying companies.