EIS was introduced in 1994 to encourage investment in small and medium-sized enterprises (SMEs) by providing tax relief on investments made in qualifying companies. To qualify for EIS relief, a company must be unquoted, have fewer than 250 employees and gross assets of no more than £15 million. Additionally, the company must be carrying on a qualifying trade, which excludes certain activities such as property development, legal and financial services, and farming.

SEIS, on the other hand, was introduced in 2012 to encourage investment in the very early stages of a company’s development. The scheme is similar to EIS, but with more generous tax relief and more restrictive qualifying criteria. To qualify for SEIS relief, a company must have fewer than 25 employees and gross assets of no more than £200,000. Additionally, the company must have been trading for less than two years and must not be a subsidiary of another company.

Investors who invest in qualifying companies under EIS and SEIS can claim income tax relief of up to 30% and 50% respectively, on the amount invested. This means that for every £1,000 invested, an investor can reduce their income tax bill by £300 (for EIS) or £500 (for SEIS). Additionally, investors can also claim Capital Gains Tax (CGT) relief on the disposal of shares in a qualifying company, which means that any gain made on the sale of the shares is exempt from CGT.

Another significant benefit of EIS and SEIS is that investors can carry back the relief to the previous tax year, which means that they can claim relief on an investment made in the current tax year but applied to the previous tax year. This can be particularly beneficial for those who have incurred a large tax bill in the previous year, as it can be offset by the EIS or SEIS investment.

Furthermore, both EIS and SEIS also offer protection for investors in the event that the company fails. If an investor holds shares in a qualifying company for at least three years and the company goes into liquidation, the investor can claim relief from inheritance tax (IHT) on the value of the shares. This means that the shares will be treated as if they were never owned by the investor for IHT purposes, which can be a significant saving for those who are planning for their estates.

In conclusion, EIS and SEIS are government-backed tax relief initiatives that provide significant tax benefits to investors who invest in qualifying companies. These schemes are designed to encourage investment in small and early-stage companies in the United Kingdom and offer tax relief, CGT relief, and IHT relief to investors. The schemes are also beneficial for companies looking to raise capital, as they provide a more attractive investment opportunity for investors. EIS and SEIS are a great way for investors to diversify their investment portfolio, support small businesses and entrepreneurs, and potentially make a good return on their investment. For more information on these, as well as other investment schemes, check out the HMRC website.