Make Money by Investing in Small Companies

The EIS, initiated by the UK government, offers tax relief incentives to individuals who choose to invest in small, high-risk companies.

Yet, it’s essential to acknowledge that assured success is far from guaranteed in such ventures. These investments inherently carry risks, and not all businesses may flourish. To incentivise investment and alleviate some of these risks, the government extends generous EIS tax incentives:

• Enjoy savings of up to 30% on your annual income tax bill, capped at £300,000 (or £600,000 for investments in knowledge-intensive companies).
• Avail exceptionally generous allowances, with limits of up to £1 million (or £2 million for investments surpassing £1 million in knowledge-intensive companies).
• Experience tax-free growth on your investments.
• Defer capital gains from other investments, possibly indefinitely.
• Offset any future losses against your income, resulting in potential income tax savings.
• Facilitate the transfer of your investment free of Inheritance Tax (IHT).

It’s important to bear in mind that tax regulations are subject to change, and tax benefits are contingent upon individual circumstances.

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The overarching aim of the scheme is to furnish small businesses with the financial resources essential for growth and job creation, while simultaneously encouraging investment in innovative and daring ventures.

Tax Benefits

The Enterprise Investment Scheme (EIS) serves as a valuable avenue for companies to garner funds and expand their operations. By issuing new shares to individual investors, companies can offer enticing tax reliefs, with each investor entitled to claim up to £5 million per annum, and a lifetime limit of £12 million inclusive of funds received from other venture capital schemes. To qualify for EIS, a company must secure investment under a venture capital scheme within 7 years of its inaugural commercial sale.

EIS Investment Amount and Returns

EIS permits a maximum annual fundraising of £5 million and a lifetime cap of £12 million for your company, encompassing any funding obtained from other venture capital schemes.
It is imperative to adhere strictly to the scheme’s regulations to enable your investors to claim and retain EIS tax reliefs for their shares. Non-compliance with the rules for a minimum of 3 years subsequent to the investment may lead to withholding or withdrawal of tax reliefs from your investors.

By investing in a private UK company through an Enterprise Investment Scheme (EIS), you have the opportunity to receive dividends and invest in UK businesses, among other benefits.

• Attain loss relief and capital gains tax relief.
• Enjoy tax-free dividends.
• Diversify your investment portfolio.
• Invest in a company during its most pivotal developmental stage, the start-up phase.

Risks Involved with EIS Investments

EIS investment carries inherent risks, as investments in start-ups and small businesses are inherently unpredictable. Investors should carefully weigh the potential risks and returns before making any investment decisions. Nonetheless, for those willing to embrace the risks, EIS offers a distinctive opportunity to support emerging businesses and potentially realise significant financial rewards.