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EIS schemes offer tax relief on contributions at 30% and a tax deferral on gains. EIS investments are generally high risk and invest in a single company.

Note – restrictions apply where an individual investor is connected with the EIS company. This is the case where the he or she is remunerated as an employee or director or owns (or is entitled to possess) 30% of the ordinary share capital, 30% of the voting rights or 30% of the assets in a winding up of either the EIS company or a subsidiary.

Investing In An EIS
John and EIS

John decides to set up a new trading business and subscribes for £50,000 of shares at par, and has gains realised elsewhere of £50,000 which he invests in the shares.

The company qualifies for EIS treatment and he applies for an EIS scheme number. He elects to defer the gains into the new shares, and saves having to pay capital gains tax on his gains.

This gives him a capital gains tax deferral of £14,000 (28% of £50,000).

Alisha and EIS

Alisha invests £50,000 into a qualifying EIS company in 2015/16 with which she has no connection.

She has gains of £50,000 for the year that she invests in the EIS. She defers the £14,000 tax payable on her gains, and also receives a tax rebate of 30% of her contribution, i.e. £15,000.