Enterprise Investment Scheme

Enterprise Investment Scheme

The Enterprise Investment Scheme was introduced in 1997 by HMRC. Its aim is to encourage private investors to invest in expanding companies in the UK, to provide the capital needed for them to grow.

Due to the inherent risk involved in investing in this type of company. HMRC offer investors a 30% tax relief against income tax on the value of the investment they make, helping to reduce the risk to the investor.

If the company were to fail and the invested funds lost there is further loss relief from future income tax available on the net investment at the investors highest marginal rate.

Example:
Investment
£20,000
Tax relief
£6,000
Net Investment
£14,000
Loss relief (40%)
£5,600
Total risk capital
£8,400

As well as 30% income tax relief, it is also possible to defer any capital gains made in the three years previous to the investment. If you have made a capital gain one of those years you can opt to re-invest the gain into an Enterprise Investment Scheme qualifying company and defer the payment of the capital gain until the investment is sold in the future.

The aim is for the company to grow and either purchase back the shares from investors in the future at a premium, or the company may be sold and a capital gain made. Under Enterprise Investment Scheme rules all investment returns are tax-free when treated as capital gains. However, any dividends paid will be treated as income in the usual way and taxed accordingly.

As the company must be un-listed (not including AIM) the shares the investor owns should qualify for business property allowance (BPR) after two years. This means they can be left inheritance tax free to a beneficiary and will not form part of the taxable estate in the event of death.

This unique type of investment not only offers the highest income tax relief in the UK when you make an investment but also offers tax-free investment growth when the investment is sold in the future. This makes it one of the only UK investments to offer tax relief at both ends of the investment process.

Net Investment Risk
  • Introduced in 1994 by HMRC
  • 30% income tax relief
  • Capital gains tax deferral
  • Loss relief at highest marginal rate
  • Tax-free investment growth
  • Inheritance tax free after two years (BPR qualifying)

“Over £1.5 Billion a year is invested in tax efficient investments”

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