The Enterprise Investment Scheme (EIS) is attractive to many investors due to the compelling tax reliefs on offer, including:
- Claiming up to 30% of the value of your investment via Income Tax relief.
- Claiming tax relief on capital gains from EIS shares held for at least 3 years.
- Claiming loss relief on the value of your original EIS investment, equivalent to the highest rate of Income Tax which you are paying.
- Claiming inheritance tax relief on EIS shares held for at least 2 years.
However, many EIS investors do not necessarily know how to go about claiming this tax relief. What’s the process? Which forms do I need, and how long does everything take to complete?
In this guide, we’ll be providing a brief overview of the typical steps you need to be aware of as an EIS investor. Please note that this content is for information and inspiration purposes only. It is not a comprehensive guide and should not be taken as investment advice, financial advice or tax advice.
How to Claim EIS Tax Relief
Claiming EIS tax relief normally happens at the time when you start filling out your tax return for the concluding financial year. During this process, you should be asked to provide information which should have been supplied to you on your EIS3 Certificates. (This paperwork should have been prepared for you by the EIS companies you have invested in, including their signature following the certificate’s acceptance by HMRC).
Bear in mind that if you have invested into a fund, then you should have received prepared EIS3 forms from each of the companies contained within the fund. Bear in mind, however, that there is an exception when it comes to Approved EIS Funds which you have invested in. Here, the fund manager should instead supply you with one form – i.e. an EIS5 Certificate.
Regardless of whether you have an EIS5 certificate or a selection of EIS3 certificates, the documents broadly contain the same kind of information:
- The name and reference of the HMRC office dealing with the certificate.
- The EIS company name and the date on which your shares were issued.
- The amount you invested into the EIS company (and upon which you can claim tax relief).
The next steps vary depending on how you tend to complete your tax return (i.e. online or via post). One exception to this submission process concerns the situation where you want to claim tax relief on a different tax year to the present one.
When you fill out a physical tax return, the relevant section regarding EIS tax reliefs can be found under the SA101 form (Additional Information). If you fill out your tax return online, however, then you will need to find Section 3 (“Tailor your return”). In these sections, you will need to enter the information from your EIS3/EIS5 certificates.
Bear in mind that you must have held your EIS shares for at least 3 years before you can claim Income Tax relief. If you sell them before the 3 years are up, then you will need to tell HMRC and also repay any tax relief you have claimed on the EIS shares.
It’s important that there is a clear line of communication between you and the EIS company or fund which you are invested in. Ultimately, it is up to them to be organised and get the EIS3 / EIS5 certificate to you in good time, before you submit your tax return. It should be in their interests to do this for you, however, as they will want to keep you on as an investor.
Do remember that an EIS company will be unable to send the EIS3 form to you until they have traded for at least 4 months. However, you are able to make a claim on your tax relief on EIS investments up to 5 years old.
When you do get your EIS3 certificate from the company in question, it’s a good idea to consider to tear off the first page and keep it for your records. Bear in mind that HMRC might well ask you to reveal your EIS3 certificate after you have made your tax relief claim.
If your address has changed from the one displayed on the certificate, make sure you include a cover letter with your new address information on it.
If you are claiming loss relief on an EIS investment, then this does not need to be reported immediately on your tax return. You are able to claim up to 4 years at the end of the tax year in question, when you disposed of the shares. However, if you want to offset against your Income Tax, then you will only be able to claim the loss against the year in which it happened, or in the previous year. On the other hand, if you want to offset against capital gain tax, then you can carry the loss forward.
For certain tax reliefs, you (thankfully) should not need to manually apply for these. For instance, if you have held EIS shares for at least 2 years then these should automatically be excluded from inheritance tax when the time comes to value your estate following your death. For peace of mind, however, we recommend consulting an independent financial adviser to ensure that you meet the relevant conditions for this tax relief.
If you are paid via PAYE and do not typically deal with a tax return, then it is possible to complete the form attached to the EIS3 certificate and send this to HMRC without necessarily having to go through the hassle of applying for Self Assessment.