EIS tax relief benefits

CGT deferral up to 28% of amount invested. Possibility to combine IHT with CGT Deferral & Income Tax Relief

How much tax can I potentially save / defer when I invest?

CGT deferred will become payable at the rate in force at the time when the investment is realised or ceases to qualify, Investors may therefore be able to combine the above reliefs so as to achieve initial relief of 58p in the £1.
Examples (ii) and (iii) are calculated on the assumption that an Investor would otherwise pay tax at 28% on the chargeable gain which was the highest prevailing rate after 6 April 2010.

What happens if I sell my shares after three years at a profit?

You will not have to pay any tax at all on any profits made from the sale of your shares (provided that the Company retains its EIS investment status) if you sell them after three years or if the Company is wound up and the assets distributed.

EIS TAX EXAMPLES

The tables below demonstrate the percentage returns that an Investor would receive if his/her shares were sold at £1.50 per share compared to the original subscription price of £1.00 per share.

If an Investor’s shares are disposed of at a loss (to the subscription price) the allowable loss for capital gains tax purposes is calculated by reducing that loss by the amount of the EIS income tax relief. The reduced loss can be set against gains or by election against income.

The tables below demonstrate the loss an Investor would incur if his/her shares were sold at £0.50p per share compared to the original subscription price of £1.00 per share.

As stated below, the examples given in this section are illustrative only and assume that at all times the company and individual qualify for EIS relief. They are not and should not be construed as forecasts of the likely performance of the investment described in this document.

The following information is presented in summary form and is not a complete explanation of EIS Relief. Income tax relief, CGT deferral relief, CGT exemption relief and loss relief may all be available to Investors under the EIS legislation. EIS Relief can be claimed only by a “Qualifying Investor” who subscribes for new “Eligible Shares” issued by a “Qualifying Company” which conducts a “Qualifying Trade”.

Qualifying Investor

Income Tax An individual need not be a UK resident but the EIS Relief is only available against UK taxable income. An individual must not be ‘connected’ with the Company at any time in the period beginning two years before the issue of the shares and ending immediately before the third anniversary of the issue date or, if relevant, the third anniversary of the date of commencement of the relevant qualifying business activity.

The main rules relating to “connection” with a company are that the individual and/or his or her associates must not:
Be an employee, partner or paid director of the Company or any subsidiary, or Directly or indirectly possess or be entitled to acquire more than 30 per cent of the issued ordinary share capital, the loan capital or the voting power of the Company or any subsidiary, or
Possess directly or indirectly such rights as would, in the event of the winding up of the Company or any subsidiary or in any other circumstances, entitle him to receive more than 30 per cent of the assets of the company or any subsidiary which would then be available for distribution to equity holders (shareholders and certain loan capital holders).

For this purpose an “associate” includes a husband or wife, civil partner, lineal ancestor or descendant and certain persons with whom the individual has a connection through a trust.

A director is not disqualified if he or she is reimbursed travelling and other expenses allowable for tax purposes but generally he or she must not be entitled to remuneration. In limited circumstances, directors previously unconnected with the company or its trade may qualify for relief provided that their remuneration is reasonable, or where non-managerial remuneration is received as trading income.

Capital Gains Tax (CGT)

An individual must be resident or ordinarily resident in the UK at the time of the accrual of the capital gain and at the time when he or she makes the qualifying investment. If UK resident or ordinarily resident they must also not be regarded for the purposes of any tax treaty as resident in another country. UK resident trustees of discretionary trusts (if all the beneficiaries are individuals) and UK resident trustees of interest in possession settlements (to the extent that individuals hold the interests in possession) may claim EIS Deferral Relief provided that the asset disposed of which gives rise to the gain and the shares acquired are held on the terms of the same trusts. For CGT Deferral relief the investor may be ‘connected’ with the Company.