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HMRC internal manual

Venture Capital Schemes Manual

Introduction to EIS income tax relief: overview

The Enterprise Investment Scheme (EIS) makes relief from Income Tax available to individuals in certain circumstances. The legislation is at Part 5 Income Tax Act 2007 starting at ITA07/S156.

The basic rule is that an individual is eligible for the relief if he or she subscribes in cash for, and is issued with, full-risk ordinary shares (see VCM12020) in a qualifying company (see VCM13010).

The legislation sets out:

  • requirements to be met by the individual investor (see VCM11000+),
  • ‘general’ requirements as to the investment (see VCM12000+)
  • certain conditions relating to the way the company raises and uses the money that need to be satisfied (see VCM13000+ for requirements and VCM3000+ for excluded activities).

This basic rule is extended and restricted in various circumstances. See VCM10520 regarding the identity of the investor and certain situations in which an individual cannot be eligible for relief.

Attribution of EIS relief to shares, requests for advance assurance, company procedures and how individual investors can claim relief are set out at VCM14000+.

Guidance on the withdrawal or reduction of EIS relief is atVCM15000+.

Guidance on what the legislation calls ‘supplementary and general’ such as transfers between spouses or civil partners, identification of shares on a disposal, acquisition of issuing company, the involvement of nominees and bare trustees, and the use of an approved investment fund are at VCM16000+.

This part of the manual deals with just the Income Tax aspects of the EIS. The capital gains aspects are dealt with elsewhere:

VCM20000 Disposal relief
VCM22000 Deferral relief - shares issued before 6 April 1998
VCM23000 Deferral relief - shares issued on or after 6 April 1998
VCM25000 Taper relief for serial investments