What extra EIS tax relief can investors get in a knowledge-intensive company?

Full answer

The Enterprise Investment Scheme (EIS) offers generous tax reliefs to investors in early-stage unlisted UK companies. Knowledge-intensive companies (KICs) receive enhanced limits to reflect the higher capital requirements of R&D-intensive businesses. Standard EIS vs KIC limits -- Standard EIS: investor can claim relief on up to GBP 1,000,000 per year; company lifetime limit GBP 12,000,000 -- KIC EIS: investor can claim relief on up to GBP 2,000,000 per year (additional GBP 1m must be in KICs); company lifetime limit GBP 20,000,000 What qualifies as a knowledge-intensive company? A company qualifies as a KIC if it meets one of these tests: -- R&D intensive: at least 10% of operating costs were R&D expenditure in one of the previous 3 years (or 15% in at least one of those years for the investment to qualify in years 1-2 of the company's life) -- Innovation criteria: the company is creating or developing intellectual property and has fewer than 500 full-time employees Additional carry-back year for KICs Normally EIS investors can carry back relief to the previous tax year. For KIC investments, investors can carry back to the year before the previous year (two years back in total), providing extra flexibility for tax planning. Core EIS reliefs (apply equally to standard EIS and KICs) -- 30% income tax relief on the amount invested (up to the annual limit) -- CGT exemption on shares held for 3 or more years -- CGT deferral relief: any capital gain can be deferred by reinvesting into EIS shares -- Share loss relief: if EIS shares are sold at a loss, the net loss (after relief) can be offset against income or capital gains -- IHT Business Property Relief (BPR): EIS qualifying shares held for 2 years may qualify for 100% IHT relief SEIS for earliest-stage companies The Seed Enterprise Investment Scheme (SEIS) is designed for very early-stage companies (pre-revenue or early revenue). It offers 50% income tax relief on up to GBP 200,000/year. SEIS companies are not eligible for EIS in the same funding round, but can progress to EIS after the SEIS round. Key risks EIS and KIC investments are high-risk. Relief is clawed back if shares are disposed of within 3 years or if the company loses qualifying status. Investors should take independent financial advice.

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