EIS stands for Enterprise Investment Scheme. It is a program through the small organisations or businesses with higher potential risk to raise capital. They can get money from investors through EIS, and in return, the investor enjoys federal tax relief. It is an ideal choice for the investors, and the smaller businessmen also get the much-needed capital to help their business grow.
The investors can claim 30% of the total investment into a company. The exact value varies on the basis of the capital a company invests. Other than the tax credit, when a person decides to sell the EIS shares, the capital gain tax on them is also eliminated. Though it is a win-win situation for everyone, only qualifying companies can sell their shares under EIS.
Who Can Qualify For The EIS-Shares?
Every company and the investor trying to opt for this scheme need to follow some guidelines in order to qualify for the tax relief. Some of the qualifying terms are as follows:-
- Investors should pay for the shares at the time they receive them. Delayed payments or are grounds for ineligibility.
- Every investor should keep the shares for a minimum of three years before selling them off.
- EIS doesn’t allow cross investments. If two companies invest in each other’s shares only to get the tax relief, their eligibility will get cancelled.
- People directly associated with the business can also not invest in its shares.
Other than this, if the company gets struck off from the qualifying list, the investors lose the claim for tax relief.
Significance Of EIS
This investment scheme is for someone who can hold on to your investment for a longer period. These will be the wealthy investors who are not bothered about the returns or income from their invested amount. It is a fruitful investment only if you do it in a calculative manner. One way is to invest in the shares of a single company, while the other one is to get in touch with a fund manager who invests your money in multiple companies. The perks that one can get with EIS shares are:-
- Getting up to 30% income tax relief. It is a considerably high amount for wealthy investors.
- There is no capital gain tax liability if your investment goes smoothly.
- You can get inheritance tax relief once you hold on to the shares for at least 3 months.
- It is an opportunity to invest in new ideas and a flourishing business that might become a well-known product tomorrow.
There are countless other benefits of investing in the enterprise investment scheme. The only condition is, you make the calculative decision. Study the market and thoroughly read about the idea in which you invest. Seek expert help to decide which way to choose, and you will never have to look back again.