The Enterprise Investment Scheme (EIS) offers tax incentives to business investors and was set to come to an end in April 2025. The scheme has now been extended by an additional 10 years.

But what EIS reliefs are available? What are the benefits? And can you claim it?

In this Q&A, Frettens’ experienced Corporate & Commercial Solicitor Paul Longland answers your questions on the Enterprise Investment Scheme.

What is the enterprise investment scheme?

The Enterprise Investment Scheme (EIS) is a government initiative that encourages investment in small, higher risk businesses.

EIS plays a significant role in these businesses raising money and offers generous tax incentives to investors.

EIS was due to come to an end in April 2025, however, in 2024, the Government confirmed that the EIS sunset clause (the date upon which a specific piece of legislation will cease to be effective) would be extended to 6 April 2035.

So, those who thought they ‘missed the boat’ on the scheme, haven’t!

What are the benefits of EIS?

For those businesses that qualify, EIS makes it easier to raise capital, as it encourages investment in ‘high-risk’ businesses.

Furthermore, EIS targets long-term investors. As such, investment through EIS is more likely to help businesses with their long-term goals.

You should bear in mind that investments in businesses covered by EIS are high-risk; this can be appealing as returns have the potential to be substantial and reap many tax benefits, but, of course, comes with the additional element of risk.

You should always seek your own independent financial advice before making an investment.

Related: What do you need to know when setting up a business?

What is the tax relief on EIS?

EIS offers attractive reliefs, including:

• Income Tax relief of 30% of the amount invested up to £1m (or £2m if investment is made in knowledge incentive companies (KICs)), subject to a clawback if the shares are disposed of within three years.
• Capital Gains Tax exemption if you sell shares that qualified for EIS relief and have held them for at least three years.
• Capital Gains Tax deferral relief on gains made from selling assets if you reinvest that money into shares that qualify for EIS relief.
• Inheritance Tax business property exemption after two years of ownership.

Related: How does Inheritance Tax work and can you avoid it?

Who qualifies for EIS?

Certain conditions have to be met in order to benefit from the scheme.

For example, the shares must be ‘ordinary shares’, paid in cash in full at the time they are issued and issued in order to raise money for the purpose of a ‘qualifying business activity’.

In addition, no more than £5m can have been raised in risk finance investments in the previous 12 months (£10m for KICs), and any money raised by EIS shares must be used for said ‘qualifying business activity’ within two years, most commonly from the issue of the shares.

Furthermore, the risk capital condition must be met and HMRC’s list of circumstances for consideration must be considered.

A full list of qualifying conditions can be found here.

Related: What are loan agreements and what should they include?

Are EIS investments worth it?

The EIS certainly has its benefits for both you and businesses looking to raise capital, but before making the investment, we would recommend you seek independent financial advice to decide whether it is the right option for you.

Every business is different so, as a small business, EIS may or may not be suited to you and, as an investor, not every investment opportunity will appeal to you.

Tailored investment and small business advice

To read more about this topic, read the full article here.

At Frettens, our Corporate & Commercial Team would be happy to discuss the EIS with both investors and small businesses, providing tailored advice.

To get in touch, you can call us on 01202 499255 or fill out the form at the top of this page. We offer a free initial appointment for all new clients.