Tax Mitigation – Enterprise Invest Schemes (EIS)

It is important that taxes are paid for the health of the UK economy, however it is also important that we do not pay too much tax to preserve our personal wealth.

Taxes come in many forms, and there are solutions such as Enterprise Invest Schemes (EIS) that can mitigate multiple taxes, provided underlying investments are held for at least three years there are three key tax benefits:

  1. 30% UPFRONT INCOME TAX RELIEF – Investors receive tax relief of 30% of the amount invested, up to £500,000 per year, against their income tax bill for the 2011/12 tax year. Investors also have the option to carry back the tax relief to the 2010/11 tax year, but this relief will be at 20% which was the rate available for that tax year.

    For example an investment of £1 million this year could result in 30% income tax relief on £500,000 this year, and an additional 20% income tax relief for the other £500,000 against last year’s income tax bill, resulting in a total of £250,000 tax relief.

  2. CAPITAL GAINS TAX (CGT) DEFERRAL – CGT is deferred for the life of the investment, gains made up to three years previously can be deferred enabling the use any future capital losses to offset previous gains.
  3. INHERITANCE TAX RELIEF – It is likely that a proportion, which will be determined by HMRC as part of the probate process, of the investment will, over time, qualify for Business Property relief (provided investments are held for at least two years and at time of death). The proportion that qualifies can be passed to beneficiaries free of IHT. In contrast to pensions and trust based solutions, investors retain control of their money during the life of the investment.

We recommend a specialist company in this arena called Octopus, their EIS is designed to deliver improved capital preservation compared to typical EIS products. Octopus undertakes a rigorous process to identify suitable investment opportunities and we’ll only invest when they are confident that they have found the right company at the right price.

Furthermore, Octopus will allow all of its management fees to roll up interest free and will only take them at the end of the minimum three year trading period, providing investors still receive back the amount invested into qualifying companies.

Once the investment has been held in the underlying funds for three years capital can be released, or potentially roll it over into a new EIS – and receive a further 30% income tax relief.

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Please note when reading any information on this website: past performance is no guide to future performance. The value of an investment may go down as well as up and an investor may not get back the full amount invested. Before investing, please ensure that you have read the information set out in the simplified prospectus, which includes full details of the charges. Any material available is directed only at persons in the UK and is not an offer or invitation to buy or sell securities. Opinions expressed on this website represent the views of Stephen Baker Financial Consultants Ltd at the time of publication, are subject to change, and should not be interpreted as investment advice.

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