In the Queens Speech 2015, HM Government announced changes to the availability of EIS relief to investors who already hold shares in the capital of the investee company. These changes are of relevance both to investors who have already invested in a company and to new investors.
What is EIS?
The Enterprise Investment Scheme (EIS) is a tax relief scheme for investors making equity investments in startups. It gives such investors a range of tax reliefs on their investment, the most notable of which are 30% up front income tax relief and 100% capital gains tax relief on a sale of the shares.
The rules governing the availability of EIS relief are complex. There are requirements that the investee company must meet both before the date of the investment and for three years thereafter as well as requirements that the investors must meet both before the date of the investment and for three years thereafter.
The relevance of State Aid
EIS is deemed to be State Aid by the European Union and so must comply with certain EU rules relating to how Member States may utilise State Aid for the benefit of individuals and businesses. The Finance Bill (No 2) 2015 sets out changes to the EIS Rules which reflect new EU rules on State Aid. The new EU regulations have been in force since 6 April 2015.
Although the provisions in the Finance Bill (No 2) 2015 will not be applied by HMRC until the Bill receives Royal Assent (unless the EU Commission requires HMRC to do otherwise), HMRC guidance advises investors and companies to assume that the rules are applicable from 6 April 2015.
Area of practice
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