enterprise investment scheme

EIS and the Tax Planning Solution



Posted on: 12th May 2022

Alongside the traditional ways to reduce inheritance tax, many clients have viewed an enterprise investment scheme as a more flexible approach to consider. Whilst this does carry a degree of higher risk, the shorter time frame for reducing IHT does compare very favourably with gifts that take 7 years to be fully sheltered.

Where the Benefit Lays

EIS is an encouragement for individuals to invest in private companies that tend to be smaller and of higher risk. To make this appealing, individuals can invest up to £1m per year in EIS-eligible investments and receive relief against their income tax at a flat rate of 30%. This effectively creates a £300,000 tax rebate for every million invested.

For this to qualify, shares have to be held for at least 3 years. Once the investment has been held for a minimum of two years, it could qualify for business property relief and be excluded from your estate in IHT and be passed on completely free of tax.

On top of that, EIS allows for the deferral of capital gains tax on previous gains as long as they are channelled into investments that qualify for EIS. Any outstanding CGT liabilities lapse upon death.

Upfront income tax relief is also an added attraction and you retain access to the capital whenever you require it.

How to Approach

Whilst the appetite may be wet, it should be made clear that EIS forms a part of an overall IHT planning solution, and the risk is always something that should be discussed with independent financial advisers Cheshire before committing to the promising plan.

This is an approach to be considered alongside a wider investment strategy and provides a solution for clients that are in the throws of poor health or later stage life where traditional 7-year solutions may not be feasible. A reason to consult with your financial adviser is that the timeframe of 2 years commences from the date of investment, not the EIS subscription. The IHT exemption qualification could also cease should you also close the investment for whatever reason.

Expert Advice

As mentioned above, there are risks to be factored into the consideration, which is why it is important to understand all avenues with independent financial advisers Manchester.

As this is a specialist area of advice, it is best to engage with professionals with specialist knowledge that can answer questions and discover other solutions for mitigating the effects of inheritance tax.

Contact the team at Haven IFA today to discuss in detail how an enterprise investment scheme can play into your wealth strategy and estate planning.