EIS – What is The Enterprise Investment Scheme?
EIS – What it is and why you need to know
Crowdstacker’s own crowdfunding campaign on Seedrs is EIS-eligible. But what is EIS and how can you use it in your investment portfolio?
Crowdstacker has just launched its own crowdfunding campaign to raise £2million for business development. Interested investors can get involved directly with Crowdstacker or via the equity finance platform, Seedrs. The investment is EIS eligible which means gains can be earned tax efficiently. But what is the EIS scheme, and how can you make use of it in your investment portfolio?
Help early stage British businesses
The Enterprise Investment Scheme (EIS) was launched in the 1990’s by the UK Government to encourage private investment into early stage British businesses. The purpose was to help investors diversify their investments at the same time as opening up new lines of potential funding for entrepreneurs.
Businesses can raise up to £5million per year via EIS-eligible venture capital, and a total of £12million over the lifetime of the business.
There are a few basic restrictions such as one stating that shares issued must be new and non-redeemable. Plus they must not carry any preferential rights, and must be held for a minimum of three years.
But for investors EIS offers a variety of tax-efficient benefits.
Firstly, the central point of EIS is that 30% of an EIS investment can be reclaimed against an income tax liability for the current and previous year. For example, if you invest £10,000 then £3,000 can be offset against this year’s income tax and/or reclaimed against last year’s income tax. Income tax relief is limited to the amount which reduces the individual’s income tax liability for this year and the previous year to £0.
Secondly, any capital gains made on an EIS investment can be earned tax free.
Thirdly, an EIS eligible investment qualifies for Capital Gains Tax (CGT) deferral. When you dispose of an asset and make a gain you usually pay Capital Gains Tax for the tax year in which you dispose of the asset. Deferral Relief lets you treat the gain as not arising until some future date if you acquire EIS shares.
Additionally, Loss Relief can be used and offset against other capital gains in the tax year in which the shares are sold.
All tax reliefs are subject to holding your EIS qualifying shares for a minimum of 3 years.
For more information about the EIS scheme and how you can use it maximize your tax relief check out the HMRC website.
Get tax efficient with your investments
The Government has introduced a range of tax-efficient ways for investors to earn whilst investing, of which EIS is just one.
Other options that are available on many of the investments Crowdstacker features on its own peer to peer lending platform include the Personal Tax Allowance and the Innovative Finance ISA.
It is always worth ensuring you are making use of these options, where possible, to optimize the tax efficiency of your portfolio.
If you’d like to invest in Crowdstacker you can find out more here.
Investing involves risks, including loss of capital, illiquidity, lack of dividends and dilution, and should be done only as part of a diversified portfolio