Why invest in EIS?
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
In 2015/16 nearly £1.9 billion was invested
In 2017/18 demand is set to rise further, as tax changes and pension restrictions start
to bite for wealthy investors.
What is EIS?
The EIS – or Enterprise Investment Scheme – is designed to encourage investment in small growing businesses. An EIS refers to the investment in companies or funds that qualify and have valuable tax advantages as a result.
The main attraction for the government is the contribution small businesses make to the UK economy: they create jobs and generate tax. The main attraction for investors is the chance to invest in the newest and most exciting businesses with the added benefit of tax relief.
to 30% income tax relief, either against this year’s tax
bill, or last year’s via a carry back facility.
- Ability to defer capital gains made elsewhere, by investing these in an EIS
- Tax-free growth – no CGT if your investment does well
relief – if EIS investments don’t work out, it’s possible to offset
losses against income or capital gains tax
- Free from inheritance tax, if the EIS
is held for at least two years and you still hold it on your death.
The tax advantages are significant, but you should make your decision to invest based on the merits of the investment itself, not the tax benefits. Tax rules can change and tax benefits depend on individual circumstances. To retain the tax benefits of an EIS you need to hold it for at least three years and the investment must remain qualifying.
Investing in small businesses is inherently more risky than investing in large businesses. Small firms are more likely to fail and investments can be hard to sell. This is one of the reasons the government offers tax benefits on EIS. The reliefs can soften the blow if things don’t work out, but amplify any gains if the firm succeeds.
Nobody likes losing money, but as you should have received 30% initial tax relief the value of the investment has to decrease by 30% before you will be out of pocket. You can also write off losses against either income or capital gains tax. This means in the worse case scenario – the investment fails with no recoverable assets – the maximum effective loss for a 45% taxpayer could be as little as 38.5 pence for every £1 invested.
Who might consider an EIS?
EIS are for wealthier and sophisticated investors who are not reliant on the amount they invest and can tie up their capital for the longer term. They must be able to accept the risk they could lose some or all of their investment.
Typical EIS investors might include those:
- with a large income tax bill
- who are affected by the reduced pension contribution and lifetime allowances
- who have sold a business, investment property or shares and want to defer paying tax on a capital gain
- who have received a tax free lump sum from a pension who want to reinvest the lump sum and get tax relief again.
Three EIS that invest in 2017/18 tax year
|Offer||Minimum investment||Deadline||How to apply|
|Deepbridge Technology Growth EIS||£10,000||26 March 2018||Read more & apply online »|
|Sterling Suffolk Hydroponics EIS||£10,000||5 April 2018 (11:00 am)||Read more & apply »|
|CHF Media Fund||£20,000||3 April (bank transfer only)||Read more & apply by post »|
Offers marked with our gold “W” are featured offers. Find out more about how we choose.
See current EIS offers
Browse all EIS offers available through Wealth ClubRead more about See current EIS offers