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What is an Enterprise Investment Scheme?

Are you looking for EIS advice?

This is a government-backed scheme, set up in 1993, to encourage people to invest in smaller start-up businesses that might find it hard to get funding another way. As a thank you for investing, every person who takes part in an Enterprise Investment Scheme (EIS) can receive a raft of benefits depending on their circumstances,

  • 30% tax relief up to £1,000,000 a year, provided they invest for three years.
  • Tax-free capital gains.
  • Inheritance tax relief after two years.
  • Capital gains tax deferral relief.

Enterprise Investment Schemes (EIS) invest in assets that are high risk and can be difficult to sell such as shares in unlisted companies. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

How does it work?

You can invest directly into an EIS-qualifying company or a fund that invests in different qualifying companies. In the fund, your investment is usually pooled with lots of other investors, so you own the shares through a nominee instead of owning them directly.

How much profit you make depends on how much your portfolio grows (or falls) in the three years. Because you’re putting money into businesses at the stage they’re most likely to fail,  EISs can be a high-risk investment, but they can yield big returns.

Here’s an example of how it could work*

Scenario 1

You invest £10,000 in an EIS-qualifying start-up business.

The stock doubles after three years, giving you £20,000, plus tax relief of £3,000 with zero capital gains tax to pay.

You’d make £13,000 on your investment.

Scenario 2

You invest £10,000 in an EIS-qualifying start-up business.

The stock stays the same after three years, giving tax relief of £3,000 with zero capital gains tax to pay.

You’d make £3,000 on your investment.   

*Not based on actual investments – these are purely an illustration and should not be taken as an indication of how a real EIS investment might work

Things to think about

  • Past performance isn’t a reliable indicator of future results.
  • The value of your EIS investment might go down as well as up and you might not get back the full amount invested.
  • Tax reliefs could change in the future and it also depends on your personal circumstances. If an EIS company doesn’t retain its qualifying status, this could also mean the loss of your tax relief.

Like to know if an EIS could be for you?

To talk to a Moneytree Wealth Management financial advisor send us a message using the form on the right-hand side of this page or call us on 01244 47010 . If you prefer, you can email:   

Linford Brown

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