EIS (Enterprise Investment Scheme) was introduced in 1994 and SEIS was introduced in 2012/13 following the success of the EIS scheme.
Over the years, there have been various changes in respect of eligibility, amounts that can be raised/invested in such funds and size of eligible companies.
According to annual statistics released by HMRC in May 2021, it appears that the schemes are still very popular. Funding from EIS increased from £1.867bln in 2019/18 to £1.905bln in 2020/19 with 155 more companies receiving funding (4,215 in 2020/19 from 4,060 in 2019/18).
For SEIS, the numbers remained flat at £170m in 2020/19 compared to £171m in 2019/18. The impact of Covid will not be known until the next set of figures is released which is likely to be in May 2022.
There is currently a ‘sunset clause’ in place in relation to income tax relief that is offered by EIS and VCT (Venture Capital Trust) schemes but not the SEIS which means without Government approval, this relief will cease to exist from 6 April 2025. I would expect in a post-Brexit era, the UK Government will almost certainly not let the tax relief offered under the schemes to expire.
The main appeal is the chance to invest in the newest and most exciting businesses with the added benefit of tax relief.
Risks of EIS investments
EIS in tax planning
On balance, for a higher rate taxpayer and/or those who are affected by reduced pension contributions and the Lifetime Allowance, there is very little else in terms of tax efficiencies, so I suspect EIS investing will remain attractive for people in these categories. For a 45% tax payer, the maximum effective loss could be as little as 38.5p for every £1 invested but on the other hand, the gains would not be capped nor would they be subject to tax so it still remains very attractive.
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