EIS Enterprise Investment Scheme

Transcription

1 EIS Enterprise Investment Scheme This document provides an overview of the capital gains and income tax relief that investors can obtain via the Enterprise Investment Scheme (EIS) CAPITAL GAINS TAX RELIEF There are 2 Capital Gains Tax Reliefs within the EIS: Disposal Relief, where shares in an EIS company are disposed of and certain criteria and conditions are met Deferral Relief, where a gain arising on the sale/disposal of any asset is deferred against a qualifying investment in shares issued by a company that meets specified requirements An Explanation of - Disposal Relief When Disposal Relief is due there will be no Capital Gains Tax to pay on the gain when you sell/dispose of the EIS shares. The conditions you need to meet to ensure you qualify are: You have held the EIS shares for at least 3 years (note that if you acquired EIS shares in a company which did not start to trade until a later date, the 3 years do not start until that later date) You have received Income Tax relief in full on the whole of your subscription(s) for the EIS shares and none of the Income Tax relief has been withdrawn The maximum subscription which can qualify for EIS Income Tax relief is one million pounds in any particular tax year.

2 However, if you did not receive full Income Tax relief on your EIS shares, but received partial Income Tax relief, you will be able to qualify for the Disposal relief if the Income Tax relief was not withdrawn and the only reason you did not receive full Income Tax relief was that your claim reduced your Income Tax liability to nil. Only part of the gain on your EIS shares may not be chargeable to Capital Gains Tax if your acquisitions in the year exceed the maximum subscription or if part of the Income Tax relief on those shares has been withdrawn. An Explanation of When Disposal Relief is Not Due You must hold on to your EIS shares for a minimum of 3 years from the date on the shares certificate in order to qualify for the relief. You can find the actual date of issue on the EIS shares certificate which the company will have sent you. If you sell/dispose of the EIS shares within three years and the sale is not to your spouse or civil partner then: Any Income Tax relief you have received, with regards to the EIS shares you have sold, will be wholly or partly withdrawn Any gain made on the sale/disposal is chargeable to Capital Gains Tax Disposal Relief is only available on the subsequent gain and not for any deferred gain which is revived on a sale/disposal of the EIS shares The deferred gain is now brought back into your Capital Gains calculation for the tax year concerned. If you make a loss on a disposal of your EIS shares, this can be offset against other chargeable gains or you may be able to set it against your income.

3 Example 1: Selling your Shares at a loss You invest 50,000 on 1st January Income Tax relief at 30% ( 15,000) is given. Less than 3 years later you sell all shares for 30,000. Income Tax relief of 9,000 is withdrawn. Income Tax relief of 6,000 is not withdrawn and remains attributable to the shares sold. The allowable loss is calculated as follows: Disposal proceeds 30,000 Minus cost 50,000 Reduced by the Income Tax relief which has not been withdrawn ( 6,000) 44,000 Allowable loss ( 14,000) Nil Income Tax Liability: If your Income Tax is nil you will receive no Income Tax relief for the EIS shares and therefore any gain on the sale/disposal of the EIS shares will be chargeable to Capital Gains Tax. An Explanation of - Deferral Relief When you dispose of an asset for more than its original purchase price, a gain arises on which you usually pay Capital Gains Tax. However, you can defer all or part of the gain to a future tax year by investing in EIS shares. As long as you obtain Income Tax relief on the EIS shares you can also claim Deferral Relief If your EIS shares were issued before the date on which the gain you claim to defer arose, you must still hold the EIS shares at that date

4 The Deferral Relief requires that the EIS shares must have been purchased no earlier than 12 months prior or 36 months after, the date of the original asset sale/disposal Example 2: Deferral Relief Claims You dispose of an asset on 1 st January 2016 making a gain. You can claim Deferral Relief against this gain by investing in EIS shares which are issued from 1 st January 2015 to 1 st January Deferral Relief can only be claimed if you are an individual resident or ordinarily resident in the United Kingdom. You can claim for deferral relief via your self-assessment tax return only once you have received your EIS3 certificate. The latest date for making a claim is 5 years after the first 31 st January after the tax year in which the EIS shares were issued. Example 3: Time Limits on Deferral Relief You dispose of an asset in January 2015 and were issued EIS shares in August 2015, you must make a claim for relief by 31 st January The deferred gain is revived when a chargeable event occurs. Such as: You dispose of your EIS shares You cease to be a resident in the UK You take up employment outside the UK and do not return within 3 years The shares are no longer eligible shares under the scheme The above applies also to your spouse or civil partner if the EIS shares have been transferred to them

5 Example 4: EIS Shares - early Disposal You deferred a gain of 20,000 in the tax year ending 2015 by investing 20,000 for EIS shares issued in February You subsequently sell the EIS shares in August The whole of the deferred gain is revived in the tax year 2014/15. INCOME TAX RELIEF Income Tax Relief is generally used for the tax year in which the EIS shares are issued. However if you choose you can use some or all of the value of the shares as if they were issued in the previous tax year. Limits are subject to the maximum of one million pound for each tax year. Income Tax Relief is given at the rate of 30% on the total amount claimed for EIS shares. If your tax liability is not high enough in the relevant tax year to absorb all of the relief available you will lose the excess relief. Example 5: Investment Investments in EIS Shares 20,000 at 30% giving you 6,000 Income Tax Relief Tax Year Tax Liability Relief Claimed ,000 2, ,500 2,500 This means you are able to claim 4,500 equating to an un-claimed amount of 1,500

6 When completing your self-assessment Income Tax Return you will need to complete the section asking of Other Tax Reliefs. However, to be able to complete this section you will have to be in possession of the EIS3 form which you will receive from the Company you have invested in. It is important to state that when investing in an EIS Scheme it is the date of the issue of the shares and not the date of the investment that is important with regards to the tax reliefs on offer and that you are, and continue to be, a UK resident Your particular investment and personal tax position makes you unique and we would suggest that if you are in any doubt about your circumstances you should to speak to an independent Accountant/Tax Adviser for further advice.