What EIS is
The Enterprise Investment Scheme is a UK government scheme, run by HMRC, that gives tax relief to individuals who invest in qualifying early-stage companies. Like SEIS, it's designed to make backing an unproven company less risky, because the relief gives investors some of their money back even if the company doesn't work out.
EIS is the scheme a company typically moves to once it's raised the SEIS maximum, is trading for longer, or needs to raise more than SEIS allows. It's also the scheme most UK angel investors ask about once a round grows past SEIS size. A company can raise up to £10 million in any 12-month period and £24 million over its lifetime through EIS, provided it has fewer than 250 full-time equivalent employees and gross assets under £30 million before the shares are issued. The investment has to happen within 7 years of the company's first commercial sale. Knowledge-intensive companies, broadly those doing a meaningful amount of research and development, get higher limits again.
How EIS differs from SEIS
- EIS applies to companies further along than SEIS, which is aimed at very early, smaller companies.
- EIS gives the investor 30% income tax relief. SEIS gives 50%.
- An investor can put up to £1 million a year into EIS, or £2 million if at least £1 million goes into knowledge-intensive companies. The SEIS limit is £200,000 a year.
- A company can raise up to £24 million over its lifetime through EIS. The SEIS lifetime limit is £250,000.
- Companies often use SEIS for a first raise and move to EIS for the next one. Where a round mixes both, SEIS shares must be issued before EIS shares.
EIS and UK tax relief
- 30% income tax relief on up to £1 million invested in a tax year, rising to £2 million if at least £1 million goes into knowledge-intensive companies.
- Shares must be held for at least 3 years, or the relief can be withdrawn.
- Deferral relief lets an investor put off paying capital gains tax on a gain from selling other assets, by reinvesting that gain into EIS shares within one year before to three years after the original sale.
- Disposal relief means no capital gains tax on any gain from EIS shares held the full 3 years, provided the income tax relief was received in full and never withdrawn.
