We’ve given answers to some of the most common queries about EIS below. If you don’t find the answer you’re looking for below, please get in touch and we’ll do our best to help.
It is important to note that nothing in this document constitutes tax advice. Tax reliefs are not guaranteed, depend on the entities invested in maintaining their qualifying status and may be withdrawn at any time by HMRC. The tax treatment of the EIS scheme depends on the individual circumstances of each investor and may be subject to change in the future. Investors should seek professional advice regarding their personal circumstances.
How does the EIS scheme work?
Eligible investors who invest into an EIS fund or directing into an EIS eligible company may be entitled to the following tax reliefs:
Income tax relief. Eligible investors can claim 30% income tax relief against an EIS investment (e.g. £300 in tax relief on a £1,000 investment)
Loss relief. Should an EIS investment fail, up to 45% of the investor’s remaining investment (minus the 30% initial relief) is then available in loss relief and applied to either an investor’s income tax bill or capital gains tax bill.
Capital Gains Tax Exemption. Any capital gains generated by an EIS investment held for longer than three years are exempt from capital gains tax.
IHT Relief. Shares held in EIS companies are exempt from inheritance tax if the investment is held for at least two years prior to the death (and at the time of death) of the investor. For more information, visit our main [EIS page] (/eis) or HMRC’s website.
How long must I hold EIS shares?
EIS shares must be held for a minimum of three years for the tax relief to be fully realised. Should you sell your shares in the business before the three year period has ended, you may be required to pay back some, or all, of the original income tax relief received. This is called “clawback” and is explained further below.
What is EIS clawback and how does it work?
EIS clawback refers to the process and calculation used when the initial income tax relief received for an EIS investment is repaid by the investor owing to the shares being sold within the three year holding period. The amount clawed back is dependent on a few factors including if the shares were sold at a profit or loss.
Can you sell EIS shares?
Yes. EIS shares can be sold though there are few secondary markets and little liquidity on them. Most shares are ultimately sold when a company is acquired or undertakes an Initial Public Offering (IPO).
Can you carry back part of an EIS investment?
No and Yes
No: You are NOT able to carry back part of an EIS investment into an individual company. The amount of relief afforded by an individual EIS3 certificate must be used in a single tax year and cannot be spread across multiple tax years. This also applies to investments into “approved” EIS funds that give investors a single EIS 5 certificate in place of multiple EIS 3 certificates.
Yes: Investments into standard EIS funds – those that do not fall into the “approved” HMRC category – provide investors with individual EIS 3 certificates for each company the fund invests into on behalf of the investor. While an individual EIS certificate cannot be spread across multiple tax years, an investor can in fact apply some of the tax relief to one tax year and some to another. The amount applied to each year must represent the total amounts of one or multiple of the EIS 3 certificates.
Can EIS tax relief be carried forward?
No. EIS cannot be carried forward. EIS3 certificates can be used in the tax year the investment was made or carried back one tax year.
How do I claim EIS on my taxes?
Most investors can make the claim for EIS on their self assessment form or through their accountant. For a full explanation on how to claim EIS on your tax return see our guide to claiming EIS tax relief.
What happens if my EIS investment goes bust?
In the event that your EIS investment goes bust you may be eligible for loss relief. EIS investments offer investors the choice of applying their loss relief to offset capital gains or income. The amount of loss relief an investor receives is equal to the amount of their investment into a company, less any initial income tax received, multiplied by their tax bracket (40%, 45% etc.).
What happens if a company I’m investing in IPOs?
If the company IPOs before your have held the shares for three years you may be required to pay back some or all of the initial income tax relief received and any gain on the disposal will incur capital gains tax.
If the company IPOs after you have held the shares for three years you can sell the shares without incurring any EIS clawback and any gain on the disposal will not incur capital gains tax.
Are AIM shares eligible for EIS?
AIM shares only qualify for EIS tax relief when subscribing to a new share issue, i.e. through an IPO or share issue.
Shares bought and sold on the secondary market, i.e. through a stockbroking service, don't qualify for EIS tax treatment.
What types of company offer EIS tax relief?
The main criteria for a company to qualify are:
- They made their first commercial sale less than seven years ago
- They have less than £15 million in gross assets
- They have less than 250 employees
- They carry out a qualifying trade.
How much can you invest in an EIS?
An investor can claim EIS relief on up to £1m of investment into typical EIS qualifying companies per year. This figure rises to £2m if the companies invested into our deemed Knowledge Intensive Companies.
How will I receive EIS certificates?
You will receive an EIS certificate (EIS3) for each investment you make, or for each underlying investment that a fund makes on your behalf.
For Access EIS investors these certificates will be saved to your Dashboard and can be used for separate or combined relief applications to HMRC. You will be able to download an Excel file containing the details of all your EIS investments, to easily attach to your HMRC self-assessment form.
How long do EIS certificates take to process?
The process of obtaining EIS certificates from HMRC is handled by the company you have invested in, or through the fund you have invested in. It can take around 15 weeks to obtain an EIS certificate from the point of shares being issued. On rare occasions, and owing to circumstances beyond the funds control, it can take longer. You will always be able to track the progress of each EIS certificate from your dashboard. EIS relief for ASA investments may take up to 6 months longer.
How long after I invest in the fund will I have all my EIS certificates?
When investing directly into a company you should expect to have your EIS certificate around 8 weeks after the funding round completes. When investing in a fund, the certificates will arrive around 8 weeks after each investment the fund makes.
Access EIS aims to build you a portfolio of at least 50 companies over a 12-month period (from the date of your investment into the fund, specifically investment completion). Therefore, it is realistic that you will have all of your EIS certificates 15 months after your initial fund investment.
How is my investment and EIS relief allocated in practice?
Fortunately, EIS relief can be carried back to one tax year earlier, but no further. For example:
An EIS-qualifying investor has a £3,000 income-tax bill for the 2019/20 tax year.
The investor makes a £20,000 investment into Access EIS on 1 December 2020.
Between 1 December 2020 and April 6 2021 approximately one quarter of the total investment amount (minus applicable fees) is deployed (as time elapsed equates to approximately one quarter of the fund’s deployment). Exact deployment levels vary month by month and will ebb and flow due to factors beyond of SR’s control. As such, it is important not to rely on any estimations and treat these figures as approximations.
An approximate total of £5,000 in investment into EIS-qualifying companies (minus applicable fees) was made in the 2020/21 tax year, earning approximately £1,500 in tax relief (30% income tax relief, per EIS rules)
The investor can either apply this tax relief to the 2020/21 tax year or carry it back to 2019/20.
The remaining fund investment of approximately £15,000 (minus applicable fees) will be made in the 2021/22 tax year, earning approximately £4,500 in tax relief (30% income tax relief, as per EIS rules) that can be applied to the 2021/22 tax year or carried back to 2020/21.
Do I qualify for EIS tax relief?
If you’re not sure, seek advice from a professional tax advisor. Generally speaking, private individuals paying income tax or capital gains tax in the UK are eligible for EIS tax relief. The amount of income tax relief you can claim in any year will be dependent on how much income tax you pay. This is capped on investment of up to £1,000,000 per year through EIS - £2,000,000 if the companies you invest in are considered Knowledge Intensive.
What is a knowledge intensive company (KIC)
A knowledge intensive company is one that carries out research, development or innovation at the time that they are issuing shares. They have a special status under EIS, and can raise more EIS investment, and have more flexibly in how they raise , than non-knowledge intensive companies.
How will EIS loss relief be processed?
In the highly likely event that one or more of the investee companies fail, eligible investors could be able to claim additional EIS loss relief against the investment.You would be notified of the company’s failure via your Dashboard and be given instructions about how to claim EIS loss relief.
Are AIM shares EIS eligible?
Typically, IPOs on the main market are not EIS shares as the company making the IPO will likely be too developed and would not qualify. However, there are often IPOs on AIM where shares are EIS eligible.
What happens if a company exits before the three year holding period ends?
If a company exits before the end of the three year holding period, EIS investors who have claimed relief for this specific investment will incur clawback on the initial tax relief gained i.e. any relief previously claimed against the investment will need to be repaid. In this circumstance they would need to contact HMRC and inform them of the event, so that the repayable amount can be calculated.
How do I make a claim for loss relief?
You can claim the relief by making an entry in box 41 on page CG 2 of the SA108 Capital Gains Tax summary pages (or online equivalent). The relief has to be claimed within 1 year of 31 January following the year in which the loss occurred. An allowable loss made in 2016 to 2017 therefore has to be claimed on or before 31 January 2019.
Capital gains related questions
Do you pay capital gains tax (CGT) on EIS?
You do not pay capital gains tax on the profits from EIS shares that are held for a minimum of three years. Should a profit be realised before the three year holding period expires, those profits may be subject to CGT.
Are dividends tax free on EIS?
Dividends received on EIS investments are taxed as normal. They are not tax free.
How do I defer capital gains tax through EIS?
An investor can defer paying the capital gains tax on gains realised in a tax year if the total of the gain is invested through EIS. As long as this gain continues to be re-invested into EIS the capital gains tax can continue to be deferred.
What happens if I’ve deferred capital gains tax and the company goes on to exit?
If the company’s exit requires investors to sell their shares (in most cases, it does), this will count as a disposal under HMRC’s rules. To qualify for disposal relief on a gain on the sale of EIS shares, the shares need to be held for at least three years. If there is an exit and subsequent disposal when the shares have been held for less than three years, that gain will not qualify for disposal relief.
Loss relief related questions
How do you calculate loss relief?
The amount of loss relief an investor receives is equal to the amount of their investment into a company, less any initial income tax received, multiplied by their tax bracket (40%, 45% etc.).
How do I claim EIS loss relief?
If you complete a self-assessment tax return, you can claim EIS losses against either income tax or capital gains tax by completing the relevant part of the SA108 form.
Can EIS losses be carried back?
An EIS investor will be able to offset a loss against their income tax bill for the current and/or previous tax year. For example, if you make an allowable loss in 2021 to 2022 you can claim the relief for 2021 to 2022 or 2020 to 2021 or both.
When can I claim loss relief on EIS?
Generally an investor must wait for a company to enter liquidation before s/he may be able to claim the EIS loss relief for that investment. However, according to HMRC, you investors may be able to make a negligible value claim for loss relief even if the company has not officially entered into administration:
“If you own an asset which has become of negligible value in your ownership then you may choose to make a negligible value claim so that you’re treated as having disposed of an asset even though you remain the owner.”
Inheritance tax relief related questions
Do EIS investments qualify for IHT relief?
Yes. EIS investments do qualify for Ineritance Tax relief through BPR. You can read more about this on our inheritance tax page.