Spotlight on EISs – Is risky tax relief for you?

spotlightAt a time when many in the city may have just received their bonus and will be paying a healthy dose of tax with it, I thought it would be a good time to mention a couple of investment vehicles that come with tax relief.

Tax relief doesn’t come for free of course, and to obtain it you must be prepared to put up with higher levels of risk.

The first of these vehicles to be discussed is Enterprise Investment Schemes (EISs).

EISs are intended to help certain types of small, higher-risk, unquoted trading companies raise capital by providing tax relief for investors. They took over from Business Expansion Schemes in 1994.

Income tax relief on EISs at present is 30% for qualifying investments and the maximum annual amount an individual can contribute at is £1million. Interestingly, income tax relief is given in the year of assessment in which the shares are issued, rather than the year of investment. So as an investor, it might be possible to carry back income tax relief to the previous tax year.

The shares must be held on to for 3 years minimum or the relief will be withdrawn.

Capital gains can also be deferred for tax reasons by investing the gain into an EIS. There are various caveats to this and I would urge you to contact us to find out more if you think this could be useful in your circumstances.

No mention of EISs should come without a big fat risk warning. Investing in unlisted trading companies is a very high risk activity and the possibility of a company failing is very real. There is also a high liquidity risk as, even after the minimum three year period, it may be difficult to dispose of the shares.

Approach with caution, but, if you are interested in how this could work for you please get in touch.

Please note that all figures given represent our understanding of current HMRC legislation and this article does not constitute financial advice.

Come back in a fortnight for a look at Venture Capital Trusts (VCTs).

Malcolm Stewart

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