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EIS Income Tax Relief Example

EIS Income Tax Relief Example

 

3 Year Holding

If an EIS qualifying investment is held for at least 3 years from the date of issue of the shares, or 3 years from commencement of trade (if later) an individual who holds no more than a 30% interest in the company (passes 30% Interest Test) can reduce their Income Tax liability by up to 30% of the amount invested. In the same circumstances, with an SEIS, they can reduce their Income Tax liability by up to 50%.

EIS Limit
There is no minimum subscription and the maximum investment in EIS qualifying shares which qualify for EIS Income Tax relief is £1m in the current tax year. The maximum is increased to £2m for Knowledge Intensive companies. The maximum investment in SEIS qualifying shares which qualify for SEIS Income Tax relief is £100,000 in the current tax year.

Tax relief is offset in the appropriate year of claim, up to a maximum of the investor’s Income Tax liability. In other words, initial Income Tax relief can reduce an investor’s tax bill to nil.

Carry Back
Investors may elect for subscriptions to be treated as if they were made in the previous tax year, provided their total claim, including any amount already subscribed for in the previous tax year, does not exceeded the annual limits for the tax year in question. So for example, an investor who had made no EIS investment in a tax year can make EIS subscriptions of up to £2m in the following tax year and elect to carry back £1m to the previous tax year to claim Income Tax relief.

Income Tax relief is available to individuals (counting spouses and civil partners separately) for the entire amount subscribed for eligible qualifying company shares.

Rebate
This relief is usually passed to the Investor in the form of a tax rebate or via an adjustment in their PAYE code. The relief can only be claimed once the investor has received Form EIS 3 or SEIS 3 from the company.

Example – A higher rate tax payer invests £100,000 in an EIS and an SEIS.

EIS SEIS
Gross Total Initial Investment £100,000 £100,000
Less Income Tax Relief @ 30% or 50% £30,000 £50,000
Net Cost of Investment £70,000 £50,000

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