Benefitting from HMRC’s Enterprise Investment Scheme (EIS)
.jpg)
For sophisticated investors contemplating investment opportunities, Enterprise Investment Scheme (EIS) qualifying investments provide an appealing alternative due to the many tax reliefs available. Investing in Enterprise Investment Schemes is encouraged by UK Government to raise funds for a greater number of small businesses, and this is reflected in the attractive rates of tax relief on offer.
NT Racing Investments Ltd was incorporated on 24th October 2024 with 10,000 shares, the purpose of the entity being to generate income to cover the extensive costs of a thriving motorsports career via private investment, sponsorship, grant income and potentially donations from benefactors who either have an affinity with motorsports, or sport in Wales in general.
The 10,000 shares will be released on a phased basis in tranches of 2,500 per annum as Neirin progresses from F4 to F2. The price point for the first tranche of entry level shares at F4 level will be determined once the final budget for 2025 is determined.
The principal return for the investor is a share of any future earnings which Neirin may achieve at any stage of his career, the pinnacle being F1 whereby earnings will exceed £5m per annum. The percentage of earnings attributed to each investor will be determined by the share purchase entry point of the investor, with early adopters at F4 stage securing a stake for a significantly lesser investment sum that those who invest at a later point when Neirin progresses upwards towards the end goal of F1.
Key Points for Investors
• Income Tax Relief - 30% upfront Income Tax relief. There are no exclusions to this tax break and it can also be spread across the current and previous year’s income tax bill. This is called a “carry-back” and it allows the investor to use any surplus income tax relief for the previous year if the current year’s income tax is reduced to zero.
• Capital Gains Tax (CGT) Deferral – an investor can defer capital gains realised on a different asset, where disposal of that asset was less than 12 months before the EIS investment or less than 36 months after it. This relief is limited to the amount being invested into the EIS and can be claimed by investors whose interest in the company does not exceed 30%. Where gains arise on the EIS investment, taper relief is available.
• CGT Reinvestment Relief - no CGT to pay on any gains made when the investment is realised after three years provided the EIS initial income tax relief was given and not withdrawn on those shares.
• Loss Relief – if EIS shares are disposed of at any time at a loss, such loss can be set against the investor’s capital gains or income in the year of disposal.
• Inheritance Tax Relief - shares do not form part of the estate for Inheritance Tax purposes, provided the investments have been held for at least 2 years at time of death and the company qualifies for Business Property Relief (“BPR”). The maximum subscription is currently £1,000,000 per investor per year, yielding a potential reduction in tax liability of £300,000 per annum (assuming the investor has sufficient income tax liability).