Usually, in the case of startups, investors used to avoid investing in them and they could able to borrow funds from commercial banks as they are too expensive. As a result, due to a shortage of funds, even potential startups are not able to sustain and shut down very soon. To avoid such failures, the government of the UK started this EIS Scheme. EIS stands for an enterprise investment scheme. This scheme has been started to encourage private investors to invest in startups and get various types of tax relief.
Benefits Of Investing In EISShares To Investors
Relief In Income Tax: for an EIS shares investor government has provided relief of 30% of the amount invested in such companies up to £1,000,000 in one tax year and the maximum tax in any one year will be £3,00,000 provided the person has sufficient income liability to claim the relief against. Moreover, this allowance is allocated individually for example two family members can take this individually.
But the condition to avail of this relief is that the investor must hold the shares at least 3 years from the date of issue or the tax relief will be withdrawn.
Relief In Capital Gains: capital gains are those gains which we get on an increase in capital asset’s value and are realized after the sale of a capital asset. Such gains are taxable. But as an EIS investor, you can save such taxes. If the EIS shares are held for more than 3 years and the income tax on such shares was claimed then the investor need not pay any capital gain tax. It can make your capital gain tax exempted for a longer period as long as you hold the shares.
Loss As A Relief: if the investor occurs any losses on the EIS shares, then the amount of loss can be set against the income of that year or the previous year either from capital gains or from the taxable income.
Capital Gains Reinvestment Relief: capital gains tax can be deferred if the gain is reinvested in the EIS shares. Such investment must be made either before 1 year or three years after the gain.
Benefits To The Company:
Easy Availability Of Funds: investors always need the cushion to invest in any particular company and any company which is at its initial stages will not able to provide such security to the investor. But with the help of EIS shares a company can raise £5 million each year, and a maximum of £12 million in your company’s lifetime.
Easy Growth: with sufficient funds any company can grow to its fullest. So, we can say that EIS shares are those shares with help the company to kick start an enterprise and an opportunity to prove their worth.