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EIS Benefits For Startups: Boosting Investment And Minimizing Tax Liabilities

Starting a new business is always an exhilarating ride filled with its fair share of highs and lows. However, the road to entrepreneurial success can be less rocky if one knows where to find the right kind of financial backing.

Enter the Enterprise Investment Scheme (EIS). This government initiative has proven to be a game-changer for many startups in the United Kingdom. Let’s delve deep into its benefits, which not only help budding businesses get that much-needed boost but also aid in minimizing tax liabilities for investors.

Decoding EIS

So, what is EIS investment? It was introduced in 1994 by the UK government to encourage private investments in early-stage companies. Recognizing that startups often face hurdles in accessing financing through traditional means, EIS was crafted to incentivize individual investors by offering them tax breaks in return for their investment.

To be eligible, a business must:

  • Be permanently established in the UK
  • Have fewer than 250 full-time employees
  • Have gross assets of no more than GBP£ 15 million
  • Be carrying on or preparing to carry on a qualifying trade
  • Not be trading on a recognized stock exchange, and there should be no plans to become quoted

Meanwhile, in this early stage investing strategy, an individual can invest up to GBP£ 1 million in EIS shares in a single tax year, or GBP£ 2 million, provided that anything above GBP£ 1 million is invested in knowledge-intensive companies.

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However, EIS has limitations:

  • There’s a maximum limit of GBP£ 5 million that a company can raise through EIS, VCT, or other designated investment schemes in any 12 months.
  • There’s a lifetime limit of GBP£ 12 million for the amounts that a company can raise under these schemes.
  • The shares must be full-risk ordinary shares, meaning they don’t carry any preferential rights.

Now that we’ve explored the rudimentary facts about EIS, it’s time to delve into its benefits for both startups and investors.

Tax Credits Claim Form Concept

How Startups Can Benefit From EIS

Here are some of the advantages startup businesses can gain from EIS:

  • Capital Infusion

Startups are always in need of capital to fund operations, R&D, marketing, and expansion. EIS attracts investors who are looking for innovative companies to invest in, providing startups with the much-needed financial backing.

  • Larger Investment Pool

With attractive tax reliefs on offer, startups can appeal to a broader range of investors, including those who might otherwise be averse to investing in early-stage companies due to the inherent risks.

  • Long-Term Investment

One condition of EIS is that investors should keep their shares for at least three years. This ensures a stable and longer-term capital injection, allowing startups to plan and operate without the constant pressure of pleasing short-term shareholders.

  • Enhanced Company Profile And Credibility

Being EIS-eligible can enhance a startup’s reputation. It demonstrates government recognition and can make the business more appealing to potential investors.

  • Networking And Expertise

Investors often bring more than just capital. They bring industry contacts, expertise, and mentorship. By attracting such investors through EIS, startups can benefit from their guidance and networks.

Minimizing Tax Liabilities For Investors

This is where the EIS shines in terms of benefits, making startups a lucrative proposition for potential investors, thanks to its various tax incentives. These include the following:

  • Income Tax Relief: Investors can reclaim 30% of the amount invested against their income tax bill for the year they invest or optionally for the previous year. This upfront reduction effectively lowers the risk for the investor by 30%, making the investment proposition more enticing.
  • Capital Gains Tax Deferral: If an investor reinvests a capital gain from the sale of any asset into an EIS-eligible company, they can defer paying the capital gains tax until the EIS shares are sold. This deferral benefit allows startups to tap into funds that might otherwise be used to settle tax bills.
  • Loss Relief: If the EIS investment results in a loss, investors can offset this cost against their income tax or capital gains tax, further reducing the potential downside of their investment.
  • Inheritance Tax Exemption: After two years, any EIS shares held by an investor are generally exempt from inheritance tax. This offers potential long-term tax benefits for investors and can make startups a more attractive option for those planning their estate.


For startups, the EIS isn’t just a gateway to essential funding; it’s a powerful tool for long-term strategic growth. And for investors, the scheme provides a unique blend of potential high returns and significant tax reliefs. As always, it’s crucial for both startups and investors to fully understand the nuances of the EIS and consult with financial advisors before making any decisions.

So, if you’re an entrepreneur or investor looking for opportunities, the Enterprise Investment Scheme might just be the avenue worth exploring.

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