EIS Tax Relief: Important Update following the Autumn Budget

As you may have read in coverage about the Autumn Budget on 22nd November, the government has recognised the importance of EIS and the impact it is having on start-up businesses.

The annual investment threshold has now been doubled from £1m to £2m for investment into “knowledge-intensive companies” – which is great news for EIS investment as tax relief can now be claimed on double the previous amount. Currently, investors enjoy 30% income tax relief on investments up to £1m. The increased threshold means that investors will get the same tax relief on investments up to £2m. Furthermore, any gain on the investment is still free of Capital Gains Tax.

Don’t know how EIS investments work? Below is an example break down of two different scenarios for an EIS investment. To keep things simple let’s assume you invest £10,000 and pay income tax at the 45% rate.

EIS Investment

Case 1: The company is bought out and your shares triple in value
Investment = £10,000
Income Tax Relief = £3,000 (you get 30% of your investment back as a tax bill reduction)
Capital Gains Tax = £0
Profit from sale = £23,000

Case 2: The company folds and your shares hold no value
Investment = £10,000
Income Tax Relief = £3,000 (you get 30% of your investment back as a tax bill reduction)
Capital at risk = £7,000
Loss relief = £3,150 (45% x capital at risk)
Your actual loss = £3,850 (£10,000 – [£3,000 + £3,150])

YOUR INVESTMENT RISK HAS BEEN MITIGATED BY 61.5%!

We’re really pleased that, through this change in policy, the government is acknowledging how crucial the EIS investment scheme is for businesses and investors alike.

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