EIS LOSS RELIEF
For UK based Investors
LOSS RELIEF AND THE ENTERPRISE INVESTMENT SCHEME
The Enterprise Investment Scheme (EIS) is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares in those companies that qualify. For the investor, it’s a tax efficient way to invest in small companies – up to £1,000,000 per person per year in qualifying companies.
Whether they are operating in traditional markets or developing revolutionary products or services, small businesses are vital to the UK economy. Supporting their growth has been a key objective of successive governments.
The scheme helps to fill the so-called ‘equity gap’, providing a source of funding to businesses that are too small to attract the attention of bigger investors and cannot borrow enough money to fund their expansion plans. EIS investing makes it possible for people to own shares in small UK companies. Investing in EIS-qualifying companies allows UK taxpayers a range of tax advantages. The reliefs provide an initial incentive to invest, and a cushion against the potential downside risks associated within investing in small companies, which is EIS Loss Relief.
If your EIS investments underperform, you can offset any losses against your income tax or capital gains.
HOW CAN I CLAIM TAX RELIEF ON EIS LOSSES?
If you have made an EIS investment which is sold at a loss or is liquidated, you may be able to claim tax relief on losses. To qualify for relief, the value of an investment at sale must have fallen below the ‘net cost’. The net cost is the amount invested, minus whatever you may have previously claimed in income tax relief.
For example, if you invested £10,000 into an EIS-qualifying investment and you then claimed upfront income tax relief of £3,000 (equal to 30% of the amount you invested), the net cost of that investment would be £7,000. See our example below for more detail.
HOW MUCH LOSS RELIEF IS AVAILABLE?
When you dispose of EIS shares at a loss, the Share Loss Relief EIS rules allow you to deduct the amount of the loss either from capital gains or from your taxable income1. The value of the relief will be between 20% and 45% of your loss, depending on the rate at which you pay tax. This guide deals mainly with making a claim against your taxable income. If you have held your EIS shares for three years, the Income Tax relief you originally claimed on your EIS investment is not withdrawn, but you do need to deduct it from the purchase cost of the shares when calculating your loss. See our example below for more detail.
IN WHICH TAX YEAR DOES SHARE LOSS RELIEF APPLY?
When you make your claim, share loss relief allows you to opt to deduct the loss from your taxable income for:
- The year the loss occurred.
- The year before the loss occurred.
- Both years, where the loss is too large to be absorbed by a single year’s taxable income.
If you need to deduct the loss from income in both years, when you make your claim you should specify which year the loss should be applied to first. If you do not have sufficient taxable income across both years to absorb the whole loss, or if it would be beneficial for you to do so, you can instead use the remaining loss against chargeable gains in the year of the loss, or carry the loss forward to use against future gains.
There is no withdrawal of Income Tax relief already received if the shares have nil value at the time of sale/liquidation.
Read more about EIS Income Tax Relief here.
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