EIS is there to help the companies raise funds for their business to grow. The company seeking funds through this scheme should qualify the eligibility criteria. Moreover, they should release their shares in the market for the investors to buy them. If you are confused about why the investors would want to get the shares, they do so to get the tax compensations from the government.
A company can raise up to 5 million UK dollars through EIS shares each year, which is a decent amount to put into company growth. The company should keep following the rules for at least three years after getting the investment. These shares can help both investors and companies in various ways. Let’s get a deeper insight into this.
How These Shares Can Help
The company releasing shares under the EIS and the investors buying these shares both get equal benefits. The funding that one raises can help in:-
- Growth of a qualifying business type. You can check the list of qualifying trades on the official website. Using the funds for any other business type is illegal.
- Start a new business in the qualifying trade. Keep in mind that it should begin within two years of getting the funding.
- As big investors buy their shares, it gives them a market reputation that works in their favour.
These are the benefits that the companies that sell shares are ripe. Let us see how this scheme benefits the investors.
How The Shares Help The Investors
The investors that do the high-risk investment and buy EIS shares of growing companies get the tax relaxations. The benefits that they ripe are as follows:
- They can get a tax relaxation of about 30% of the total investment value. This amount can be up to 1 million UK dollars per financial year.
- The CGT payment can be postponed when the investors buy shares of a company that qualifies under the enterprise investment scheme.
- If the investor holds the share value for a time of three years can avoid paying the capital gains tax.
- Even if the shares dispose at a loss, you can choose to settle the loss amount in the income tax of the same financial year or the previous one.
There are plenty of tax benefits that an investor gets. It is a significant reason why they never shy away from buying the high-risk shares of growing companies. The only thing that the investor has to take care of is to ensure that the company they are investing in qualifies the EIS rules and eligibility. The ideal way for both investors and the companies owning shares is to seek expert help and understand the working of EIS funding before trying their hands into it.