- Why EIS?
- SEIS / EIS Relief Benefits
- Kuber Business Relief (BR)
- Case Studies
- Positioning EIS as Private Equity component of a portfolio
- Risk factors
In order to be able to claim, and keep, the tax reliefs relating to your shares, the Investee Company which issues the shares has to meet a number of rules regarding the kind of company it is, the amount of money it can raise, how and when that money must be used and the type of trading activities carried out.
The Investee Company must satisfy HMRC that it meets these requirements, and is therefore a qualifying company. The shares must then be held for at least the Relevant Period, or income tax relief will be withdrawn. Generally, this is three years from the date the shares were issued. However, if the qualifying trade started after the shares were issued, the period is three years from the date the trade actually started.
In summary, the Investee Company must:
Be an unquoted company, meaning it can’t be listed on any recognised stock exchange. It can subsequently become listed without investors losing income or capital gains tax reliefs, but only if there were no plans for it to become listed when the shares were issued. For the purpose of EIS and SEIS, the Alternative Investment Market (AIM), and PLUS markets (with the exception of PLUSlisted) are not considered to be recognised exchanges. N.b. in circumstances where a company subsequently lists, it would no longer qualify for business property relief and the IHT exemption would fall away
The rules regarding not being controlled by another company, qualifying subsidiaries and the company carrying on the trade must be met throughout the Relevant Period. If they’re not then you’ll lose your tax reliefs
An EIS/SEIS Qualifying Company’s trade must be conducted on a commercial basis with a view to the realisation of profits. Most trades qualify, but some do not. Those that do not are termed ‘excluded activities’ and are:
A company can carry on some excluded activities, but these must not be a substantial part of the company’s trade. HMRC take ‘substantial’ to mean more than 20% of the company’s activities.