RJP Capital Ltd.

Level 13 Broadgate Tower

20 Primrose Street

London  EC2A 2EW

Enterprise Investment Scheme

Introduced in 1993, the Enterprise Investment Scheme (EIS) provides Income Tax and Capital Gains Tax (CGT) reliefs for qualifying investments. Its aim is to encourage investment by individuals in small unquoted trading companies (the investee company).

In general, small businesses, while often able to obtain modest loans or overdraft facilities, find larger amounts of capital difficult to obtain. The attraction for the individual investor is more generous tax reliefs for investing in higher risk start-ups than investing in larger and more established undertakings.

Trading requirements

The investee company must be a ‘qualifying company’. To be a qualifying company it must satisfy certain conditions, both at the time the shares are issued and for a period of time following the issue. In order for the company to be a qualifying company it must be unquoted at the date of subscription (AIM and other secondary markets are not treated as unquoted for this purpose), and either exist wholly to carry on one or more
qualifying trades or be the parent company of a trading group. Trades will not qualify if they include certain activities as a substantial part of their business. Non-qualifying activities include:

  • Dealing in land, commodities, futures or shares.
  • Banking, insurance, debt factoring, other financial activities.
  • Leasing, letting assets on hire or, receiving royalties or licence fees.
  • Farming or property development.
  • Operating nursing homes.
  • Operating hotels or similar establishments.
  • Providing services to another party, whose trade includes the prohibited activities.
  • Shipbuilding and coal and steel production.


The EIS company must own more than 50% of the ordinary share capital of each of its subsidiaries and must itself not be controlled by another company, nor can there be arrangements in existence where it could become controlled by another company.  For the purpose of these  provisions, a company would have control if it can secure more than 50% of the company’s voting power by either the Articles of Association or any other document regulating the company. 

Value of group assets 

The value of the company’s gross assets must not exceed £15 million immediately before the issue or £16 million immediately afterwards. 

Use of funds 

The money raised from the share issue must be employed by the company or one if its 90% subsidiaries for the purposes of its qualifying trade within two years.

Number of employees

A qualifying company must have fewer than 250 full-time equivalent employees.

Investment limit

For shares to qualify as EIS shares, the company must have raised no more than £5 million by issuing shares under any of the venture capital schemes in any 12-month period. 

Qualifying investors

EIS tax relief is available to individual investors (qualifying investors). Qualifying investors may apply for the following reliefs on their investment in qualifying shares in qualifying companies:

  • Income Tax relief on the amount invested, subject to limits.
  • Exemption from CGT on disposal of the shares.
  • Deferral of gains arising on any other assets.

In addition, although it is not specifically an EIS relief, EIS shares will often qualify for relief for any allowable losses on disposal of the shares against other income arising in the year. Trustees of trusts will only qualify for deferral relief.

Income Tax relief

Income Tax relief will be given at 30%.

Amount of relief

An investor can make an unlimited investment, however, the amount which can qualify for Income Tax relief is restricted to a maximum of £1 million.

Holding period

The investor must subscribe cash for the shares on his own behalf and hold the shares for at least three years to retain the tax benefits.


The investor must not be connected with the issuing company. This includes directly or indirectly owning or being entitled to acquire more than 30% of the issuing company’s share capital, voting power or assets on winding up of that company or any subsidiary. When considering the 30%
holding it is necessary to look at the holdings of his or her associates, who include, but are not limited to, parents, spouse and children.

An investor can also be connected with the company due to his working relationship with it (eg as an employee or director) unless they qualify a ‘business angel’ – broadly translated as a third party investor who, subsequent to their investment, becomes a paid director.

CGT exemption

Where shares qualify for EIS Income Tax relief then they will also qualify for the exemption from CGT on the sale of the shares. This CGT relief is only available where Income Tax relief has been obtained and therefore the rules in relation to obtaining Income Tax relief have to be met.

CGT deferral relief

The deferral relief can be claimed where an individual or a trustee sells any asset, and within the period of one year before and three years after the sale, reinvests the funds up to the amount of the capital gain by subscribing for qualifying shares in a qualifying company.  The capital gain is then deferred until the sale of the new shares or the conditions for the relief are no longer met.  The EIS provides many tax benefits for its  investors, but the qualifying conditions as outlined above are narrow and must be strictly adhered to in order to preserve the tax benefits.

This factsheet is based on law and HM Revenue & Customs
practice at 18 January 2013.