EIS Scheme

What is the Enterprise Investment Scheme?

EIS was introduced to encourage investment into small, privately owned UK companies. The scheme provides attractive tax benefits to investors who provide capital to the company in return for shares. Investments in an EIS are for a minimum of 3 years. Shareholders may realise their investment thereafter or benefit without losing EIS Relief.

In recent years the Government has reduced the tax planning opportunities available to private investors and since the introduction of the EIS there have been a number of legislative amendments. However, as a special investment scheme, the EIS provides an attractive opportunity for private investors and certain kinds of UK trusts.

Summary of Benefits to Investors:

- Income Tax relief at 30% up to £1,000,000 for individuals and up to £600,000 for married couples and connected persons.

- Deferral of Capital Gains Tax (CGT), unlimited relief at up to 28% of the investment on gains arising in the three years prior to or the year following the date of investment, so previous CGT liability can be reclaimed or deferred. Combined with the initial tax relief, this reduces the actual cost of investment into an EIS by up to 58%.

- Exemption from Capital Gains on the EIS shareholding if held for three years.

- Possible combined relief for Income Tax and CGT of up to 58p in the £1.

- Carry Back, Investors can carry back to the previous tax year, the value of any investment made
up to the following 5th April.

- 100% Inheritance Tax (IHT) relief on shares owned for a minimum of 2 years.

- Loss relief of up to 65% which can be offset against income tax or CGT liabilities for any
investment which makes a capital loss. The EIS can mitigate risk by combining the initial tax relief
and the loss relief to limit the downside to 35% of the amount invested.

- Applicable for certain UK Trusts.

The Company intends that the UK Film Producer Tax Credit be claimed by each Production Company on all qualifying films; this should deliver a rebate up to 20% of a film’s budget. Eligible investors must be UK resident and ordinary resident individuals or certain types of UK trust.

Income Tax Relief

Investors can obtain income tax relief of up to 30% of the amount invested up to £500,000 per annum, in any tax year, on monies invested in EIS qualifying companies, provided that the monies stay invested in those companies for at least three years (with husbands and wives qualifying separately, subject to a maximum total of £600,000).

The net cost of each Investment made in the Company is therefore normally 70 per cent of the amounts subscribed for the investment. Neither the Investor (nor the spouse nor associates) must be connected with the qualifying company (broadly, as an employee or director or as a 30% shareholder) within two years before or three years after the individual invests in the EIS qualifying company.

Any breach of these conditions would mean that EIS Relief would not be available to the Investor (nor the spouse nor associates).