What is EIS (Enterprise Investment Scheme)?
The Enterprise Investment Scheme (EIS) is a government initiative designed to encourage individuals to invest in early stage companies. They provide finance for smaller, higher-risk companies to help them develop and grow. The government recognises the benefits smaller businesses bring to the UK economy and offers a range of tax benefits to reward investment in small companies through an EIS. Companies are either unquoted or they are listed on the Alternative Investment Market (AIM).
The EIS is designed to help these small companies raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. The VCT scheme spreads the investment risk over a number of companies since individuals invest indirectly in a range of small companies. Investors subscribe for shares in VCTs which are companies listed on the London Stock Exchange and are similar to investment trusts. VCTs are run by fund managers who are usually members of larger investment groups.
The EIS and VCTs have traditionally been grouped together because they encourage investment in small unquoted trading companies and have certain legislative features in common.
Perhaps the greatest benefit of investing in an EIS is the number of tax relief options available including income tax relief, inheritance tax relief and capital gains tax referral.
The table below shows the key differences between VCT and EIS in terms of product features:
| Enterprise Investment Scheme | Venture Capital Trust | |
| Maximum Investment | £1m | £200k |
| Tax Relief | 30% | 30% |
| Holding Period | 3 years | 5 years |
| 1 Year Carry Back | Yes | No |
| Dividends | Taxable | Exempt |
| CGT | Gain Exempt | Gain Exempt |
| CGT Deferral | Yes | No |
| IHT Property Relief | Yes | No |