Enterprise Investment Schemes (EISs)
These schemes were launched with the idea of helping smaller companies who carry higher risks to enhance their growth. The main objective was to attempt to inject more finance into these companies to try and further their development.
In order to raise this finance, EISs offers tax advantages to investors when purchasing new shares within these smaller companies. These schemes offer more tax relief than other investment opportunities as they often hold a considerable amount of risk due to investing within one specific company, rather than spreading the risk over several smaller companies such as within a VCT Scheme.
These schemes are usually aimed at individuals who can afford to tie up their money for a longer period of time and individuals who would feel the benefit a considerable amount of tax relief.
- Individuals can claim up to 30% relief for income tax amounting to a maximum investment of £1,000,000 (up to £300,000 relief).
This tax relief can only be claimed if you have held the shares usually for at least 3 years (from the date of issue) and if you are not connected to the company.
- Exemption from Capital Gains Tax
This scheme enables you to have relief on the gains you make from your investment and may even enable you to defer your capital gains tax depending on your circumstances.
- Relief of 100% can be claimed from inheritance tax
This relief applies as long as you have held these shares for at least 2 years and still own them at death.
- Loss relief of up to 45% can be claimed
If shares are sold at a loss, this amount, less any relief from income tax allowable, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of being set off against any capital gains.
The information provided should be treated solely as a guide and you should seek professional advice regarding your own personal circumstances and objectives.
The Basics of Business Property Relief (BPR)
Business Property Relief or BPR is an area of tax planning that has become increasingly popular in recent years in the mitigation of inheritance tax (IHT) liabilities. Originally designed for entrepreneurs passing on family firms, BPR gives full relief from IHT on assets held for a minimum of two years. But of possibly greater significance is the fact that investors in assets such as portfolios of Alternative Investment Market (AIM) stocks retain access to their investments.
Investments that qualify for BPR include agricultural land, plant, machinery, forestry and suitably qualifying companies listed on AIM and the Enterprise Investment Scheme (EIS). Specifically, AIM stocks must be ‘trading companies’ to qualify for BPR, so things like resources stocks and most property companies do not qualify. Importantly AIM shares can now be held within an ISA wrapper, further sheltering the investment from Income Tax and Capital Gains Tax.
It is also worth noting that investments that use BPR are generally regarding by tax planners as the final stop, after the basic IHT reliefs and trust options have been used, or where the need to retain control of assets is paramount. BPR schemes are typically high risk.
This table summarises what qualifies for business relief & the rate of relief that can be obtained.
||Rate of relief
|A business or an interest in a business.
|Unquoted securities which on their own or combined with other unquoted shares or securities give control of an unquoted company
|Quoted shares which give control of the company
|Land or buildings, machinery or plant used wholly or mainly for the purposes of the business carried on by a company or partnership
|Land or buildings, machinery or plant available under a life interest and used in a business carried on by the individual
The investment within property/shares must be kept for 2 years in order to qualify for relief.
It is important to be aware that there are many situations where relief is not achievable, for example when:
- the business mainly deals with stocks, shares or securities, land/buildings or in the making or holding investments;
- the business is subject to a contract for sale or being wound up;
- the business is a not-for-profit organisation;
- the business generates investment income only;
- the business asset is already qualifying for agricultural relief;
- the business asset was not used for mainly business purpose within the immediate 2 years from passing it on from wills/gifts;
- the business asset is not intended for future use within the business and;
- Loans are made to a business.
It is possible to acquire some relief if a part of a non-qualifying asset is used within your business.
Important also seek professional advice before considering any tax schemes.