From capital gains tax exemption to 30% income tax relief and inheritance tax relief, the EIS is widely known for the long list of tax reliefs. Defined as the Enterprise Investment Scheme, it presents investors keen to invest in startups and scaleups. At the same time, in this post, we have shared a series of facts that you need to know about the EIS tax relief benefits.
You can invest over £1 million every financial year.
It often comes as the highlight of this scheme that investors can invest upto £1 million in investments related to EIS each financial year. Honestly, this is the actual case. Although, with all the recent changes, investment in knowledge-intensive startups under this particular scheme allows their investors to invest upto £2 million per year. Altogether, this allows the capitalists to claim back £600,000 or more under the tax relief clause. Rest, investors can most benefit from this privilege, depending on their liabilities and personal circumstances.
There’s uncertain capital gains deferral.
As we begin a fresh financial year, another important benefit for the investors investing in EIS eligible businesses is the capital gain tax deferral. For capitalists who have made a capital gain in the tax year 2020-2022, they can invest again into a similar business, hence, deferring this gain until all shares are sold. In due course, this authorizes the capitalists to utilize the potential EIS investment tax reliefs from the investment to compensate the liabilities while also serving any changes in capital gains allowance charges.
Evidently, the deferral limit is not restricted; it is based on where the capital gain liability became apparent. For instance, it could be from the sales of shares, real estate, or even the sale of a fine art piece. For that reason, when liabilities get due gain after relinquishing of shares, it is highly possible to reinvest once again and defer the liabilities a second time. As per the standards, this can be practised indefinitely, indicating the tax liabilities can be consistently deferred by reinvesting. So this is how investors can benefit from the exempt growth achieved from the EIS opportunities.
Possible losses can be counterbalanced.
In this case, if any investments do not turn out that well, the enterprise investment scheme allows you to counterbalance the loss against the hefty tax bill. It is most likely used against income tax in the same or preceding year, given how this is estimated. However, the loss can be carried ahead to counterbalance future gains. The rate of tax is set:
- 28% against the capital gains tax
- 20% for the basic rate income tax
- 40% for the higher rate income tax
- 45% for the additional rate income tax.
This ultimately means that for additional slab taxpayers, the exposure can be as less as 38.5%, particularly when the investment value goes to zero.
All investments are Inheritance tax exempt.
Many people invest in planning for the future. They often try investing in a retirement pension plan or taking care of family requirements in the future. One primary aspect of this planning is related to Inheritance tax. Now that is where relief Eis tax shares can be extremely benefitting, making a big difference between VCTs and EIS investments, the latter of which are not Inheritance tax exempt.
EIS tax reliefs can be restored
Given the date and time, many investors realize their tax liability for the previous years, wishing they did more with their capital in that specific year. Thankfully, with EIS, the preceding tax year is not set in stone.
For example, investors can utilise the 30% income tax relief proposed on EIS qualified stakes in the present tax year. They can also be restored and treated as if the acquisition had taken place in the prior year, decreasing the tax liability for any respective previous year.
EIS investment tax relief is available to all taxpayers.
From a business perspective, the best part about the benefits of EIS is that as long as you have paid income tax in the UK, you are actually eligible to claim them once you invest. The only circumstances on the amount to be claimed are that you need to have sufficient tax paid in the year to cover the relief amount for the year mentioned.
ENDNOTE
With a myriad of advantages along, EIS tax reliefs are specifically generous. It is no real surprise that this particular scheme has grown in popularity since its inception. We believe that we are passionate about the scheme for both the existing and upcoming generation of British businesses and assume it can be extremely profitable for entrepreneurs and investors alike.
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